Better prepared for stronger ringgit
A lower exposure to US dollar puts MMS Ventures in better position than other tech firms
MMS Ventures Bhd (MMSV) will be able to withstand the effects of a strengthening ringgit more than other technology stocks.
This is because the company says it has much less exposure to exports compared to other technology exporters in Malaysia.
The company’s chief executive officer Sia Teik Keat tells StarBizWeek that its exposure in net terms to the US dollar against the Malaysian ringgit exchange rate is around 20%.
“We have about 40% of our sales in the dollar while for our purchases its at 20%. If the dollar continues to weaken against the ringgit in the longer term then we will definitely see some foreign exchange losses but this is not significant,” Sia says.
“Most of our customers are multinationals which are based in Malaysia so sales are conducted in the ringgit. For the rest of the tech companies they have a very high exposure to the dollar as 80-90% of their sales are to export markets,” he adds.
In a strengthening ringgit environment like what had been experienced last year, the company recorded an unrealised foreign exchange loss of RM327,955.
When the ringgit weakened in its financial year 2016 (FY16) ended Dec 31, MMSV recorded a foreign exchange gain of RM676,820.
Sia says that the company would experience a drop of about 10-15% in its revenue figures.
“However it is very difficult to tell for our profit position forecast for this year. Last year we sold about 170-200 machines. For this year it may be around 10% less,” he says.
MMSV’s shares have come off their historical highs from last year of almost RM2.00 per share, and it is now hovering at near the RM1.40 level.
Its shares had also been affected by the selldown in tech that was see in the beginning of this year but to a lesser extent because of the reduced foreign exchange exposure as compared to its other export ori- ented peers. “I believe the market has already fully factored in our anticipated drop in revenue this year. Revenues are going to drop because of reduced orders from the smart devices segment. This segment will not be performing so well this year, it contributed 60% last year while this year might drop to 40% of sales,” he says.
It was a record year for MMSV in the FY17 when it more than doubled its revenue to RM75.57mil from RM35.58mil in the previous year.
Net profit had also grown by more than 2 times to RM21.05mil from RM9.52mil in the previous year.
“This sterling performance was all due to hard work and our ability in capturing new process in the front end production amidst the highly competitive marketplace and environment. This success has not only increased our profile but also enabled us to win and increase our portfolio of customers,” its chairman Tan Hock Hin says in its annual report.
“With the surge in revenue, coupled with prudence in managing our operational costs, we successfully thrived amidst rising costs of both raw materials and labour,” the company adds in its annual report.
Moving forward Sia expects the FY19 to be a better year given the anticipated mobile phone cycle upgrades that will happen in that year.
“I believe we will see a drastic change to the appearance of some of the smart devices next year and this will positively impact us,” he says.
In a research report dated March 22, Maybank Investment Bank Research (Maybank IB) is projecting a strong earnings rebound in FY19 or an increase of 32% from the year before as the company enters an upgrade cycle notwithstanding new automation projects.
Maybank IB is expecting earnings for MMSV to be 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: with an imputed 30% year-on-year higher unit sales.
“Also, we expect higher demand to come from MMSV’s exposure to ams AG via Globetronics Bhd in the sensor segment. MMSV had passed the audit process by this new client in 2017.
“The sensor segment is expected to grow due to adoption of 3D sensing, augmented reality and virtual reality, among others; ams AG is guiding for a strong 60% compounded annual growth rate (CAGR) revenue in 201619,” it says.
“On the back of strong revenue growth in FY19, we project a two-year net profit CAGR of 7% from FY17 to FY19,” it adds.
Meanwhile, Sia says the company also is also planning to venture into building new machines for new business segments moving forward and this is in laser lighting division which is used for car headlamps.
“The volume won’t be high this year and it is very insignificant. But it uses the same LED technology and this should have the potential to grow moving forward to about 3-5% of our sales,” Sia says.
With its cash pile of RM28.74mil (circa 18 sen per share) and zero gearing as at Dec 31, 2017, the company is also continuously on the lookout for potential companies to acquire.
“If there is anything out there that complements us we will consider acquiring them. A new company can help us in new products such as in the areas of vision or laser lighting and internet of things related,” Sia says.
Amid the rise in cashpile, the company will be prudent to maintain a dividend policy of about 30% of its profits but Sia notes that they usually pay more than the policy rate.