On 30 April 2024, Micro-Mechanics Holdings Limited (“MMH”) have announced their third quarter results for FY2024. The results are in line with the last few quarters, which may be an indicator that MMH have stabilized at these levels while waiting for the semiconductor industry to improve. While it is uncertain when the recovery will take place, MMH is in a relatively strong financial position. The next financial year will likely also see improvements in metrics, given that FY2024 had a lower base as compared to their historical results.
Website: Financial Statements And Related Announcement::Third Quarter Results
Photo source: https://www.micro-mechanics.com/
Background
MMH designs, manufactures, and markets high precision parts and tools used in process-critical applications for the semiconductor and other high technology industries.
The Group’s strategy is to relentlessly pursue product and operational improvements while providing fast, effective, and local support to its customers worldwide.
In addition to designing and manufacturing a market-leading range of consumable tools and parts used in the assembly and testing of semiconductors, the Group also engages in the contract manufacturing of precision parts and tools used in process-critical applications for the semiconductor wafer-fabrication and other high-technology industries.
MMH became a public corporation and listed on the SGX-Sesdaq in Singapore in June 2003. On 22 July 2008, the listing and quotation of its shares was upgraded to the SGX Mainboard. Since its listing, the Group has received multiple awards in recognition of its high standards of corporate governance, quality of disclosure, transparency and investor relations.
Financial highlights
Revenue
| Metrics | Current | Previous |
|---|---|---|
| Revenue | -17.1% | -20.5% |
For the 9 months ending 31 March 2024, revenue decreased by 17.1% to SGD42.9 million from SGD51,8 million in the same period for the previous financial year. This quarter saw a relatively consistent revenue when compared to the previous quarter. The reduction in the decrease this quarter was due to a lower base in the previous financial year.
Management has disclosed that the decrease in revenue was mainly due to the global semiconductor industry which continued to work through excess inventory built up during the recent downturn. The metric remains Unfavorable.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | -23.4% | -33.0% |
Net profit has decreased by 23.4% to SGD5.9 million. The decrease in net profit resulted in earnings per share to fall proportionately as well, with the basic and diluted earnings per share at SGD0.0429 as compared to SGD0.0560 in the previous financial year. The metric remains Unfavorable.
There are improvements this quarter compared to the previous quarter mainly due to cost management, as I can see that despite the relatively similar revenues these 2 quarters, MMH was able to generate SGD1.8 million net profit in 2024Q3 compared to the SGD1.4 million in the previous quarter.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | -26.9% | -43.2% |
Cash flows from operations for the 9 months ending 31 March 2024 decreased by 26.9% to SGD10.1 million from SGD13.9 million in the same period for the previous financial year. The decrease was from the reduction of the profit for the financial year, as well as less favorable changes in working capital. The metric remains Unfavorable.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing ratio | 19.0% | 19.1% |
With effect from April 2024, my articles will be shifting the metric for this section from debt-to-equity ratio to gearing ratio. This will allow readers to have an easier comparison with Real Estate Investment Trusts (“REITs”) and determine the amount of financing each Company is using. Gearing ratio was 19.1% for the previous quarter, with total assets of SGD56.7 million and total liabilities of SGD10.8 million.
As of 31 March 2024, with total assets of SGD54.2 million and total liabilities of SGD10.3 million, gearing ratio remained relatively unchanged at 19.0%. This metric is Favorable as MMH is less reliant on external sources to fund operations.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest coverage | 23.9x | 20.8x |
The interest coverage stands at 23.9 times as of 31 March 2024, using profit before tax of SGD8.6 million and interest expense of SGD0.4 million. The finance costs mainly arose from their lease liabilities, as the Group has no external borrowings. The metric is Favorable.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 5.13 | 4.85 |
Net Asset Value (“NAV”) of the Group as of 31 March 2024 decreased to SGD0.316 per share, presumably due to the dividend payout during the quarter. With the closing share price of SGD1.62 as of 31 May 2024, this translates to a Price-to-book (“P/B”) ratio of 5.13. This is Unfavorable. The high P/B ratio translates to paying a huge premium for MMH business. In the scenario of a liquidation, investors will only be getting back 20% of the price they have paid.
As of 31 May 2024, the Market Capitalization is approximately SGD225 million.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2024 | 1.85% | SGD 0.030 |
| 2023 | 5.56% | SGD 0.090 |
| 2022 | 8.64% | SGD 0.140 |
| 2021 | 8.64% | SGD 0.140 |
| 2020 | 7.41% | SGD 0.120 |
| 2019 | 6.17% | SGD 0.100 |
Based on current trend, the dividend for the calendar year 2024 is likely to be lower than the previous financial years. The dividend payout in November 2023 amounted to SGD0.030 per share. Assuming that this dividend payout is maintained for November 2024, the total expected dividend for the calendar year would be approximately SGD0.060 per share.
With a closing share price of SGD1.62 as of 31 May 2024, this translates to a dividend yield of 3.70%. For my benchmark, a general reasonable range would be around an average of 5.50% to 6.50% in the current environment. MMH’s dividend yield is below my benchmark and is Unfavorable.
Website: Reasonable Dividend Yield 2024Q2
If using dividend yield of 5.50% as a benchmark, based on the expected dividend of SGD0.060 there is potential for MMH to see its share price drop by 32.7% to SGD1.09. Investors will thus need to be mentally prepared that the share price might further fall.
| Yield | Share Price | Downside |
|---|---|---|
| Current (3.70%) | 1.62 | – |
| 5.50% | 1.09 | -32.7% |
| 6.50% | 0.92 | -43.0% |
| 7.50% | 0.80 | -50.6% |
| 8.50% | 0.71 | -56.4% |
It was worth noting however that the dividend payout has been more than their earnings per share throughout history. The dividend payout for 2023 is higher than the FY2023 earnings per share.
This is made possible given that depreciation expense, which is a non-cash expense, can be used to adjust the net profit into net profit before depreciation. The adjusted earnings per share will then be more than sufficient to cover the dividend payout. For the first 9 months of FY2024, adjusted earnings per share is SGD0.078 per share which is sufficient to pay the expected dividend of SGD0.060 per share.
| Description | Amount |
|---|---|
| Net Profit | SGD 5,957,765 |
| Depreciation adjustment | SGD 4,911,710 |
| Adjusted net profit | SGD 10,869,475 |
| Number of shares | 139,031,881 |
| Adjusted earnings per share | SGD0.078 per share |
The issue with this is management signalling that there is not much capital expenditure required to replace their assets. Annual repair and maintenance will be sufficient to maintain their assets, which is cheaper than purchasing a new asset. Investors will need to take note if they are comfortable with the idea that their assets are able to last longer than the pre-determined useful lives as at reporting date.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | -17.1% | Unfavorable |
| Earnings per share | -23.4% | Unfavorable |
| Operating Cash Flows | -26.9% | Unfavorable |
| Gearing ratio | 19.0% | Favorable |
| Interest coverage | 23.9x | Favorable |
| Price to Book Ratio | 5.13 | Unfavorable |
| Overall | | Neutral |
Overall, the metrics indicate that it remains Neutral to invest in MMH. Based on the results of the last few quarters, it would seem that the fundamentals of MMH have stabilized at these levels. From here, investors will need to monitor the market, as MMH is dependent on recovery of the semiconductor industry.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Previous Post
Website: Micro-Mechanics Holdings Limited (SGX: 5DD): 2024 Half Year Result
