MMS VENTURES BHD

By Maybank Investment Bank Research Buy

Target price: RM2.02

MMS Ventures Bhd (MMSV) runs a lean business by employing a flat organisation structure and flexible manufacturing model, said Maybank Investment Bank (Maybank IB) Research, adding that the company outsources its fabrication works, focusing only on high-value-added processes.

These include research and development, design and prototyping as well as final testing and quality control.

“This has enabled it to adapt quickly to changing market demand, as illustrated in its 2017 performance. Meanwhile, high barriers to entry from extensive domain knowledge requirement will cap competition and price erosion,” said the research house.

Following a strong 2017, Maybank IB said it expected MMSV to see a 15% year-on-year (y-o-y) earnings contraction in 2018 due to slower capital expenditure (capex) cycle for one of its key clients and unfavourable foreign exchange.

“Nonetheless, we project a strong earnings rebound in 2019 as MMSV enters an upgrade cycle notwithstanding new automation projects.”

For 2019, Maybank IB said it expected a strong 32% y-o-y increase in revenue, led by a jump in demand for inspection equipment as the camera flash module for the North American premium smartphone brand hits its replacement cycle again.

“On the back of strong revenue growth in 2019, we project a two-year net profit compounded annual growth rate of 7%,” said the research house.”

Up to end-December 2017, Maybank IB said MMSV was able to amass a cash war chest of RM33mil as its business model is largely cash-generative.

“But as there are no immediate indications of an expansion or potential mergers and acquisitions, we believe MMSV will continue to reward shareholders through dividends.

“While there is no dividend policy in place, strong cashflow generation and low capex requirement have allowed MMSV to pay out more than 30% of its net profit in the past three years.”