Micro-Mechanics

Growth momentum seen following resilient 4Q Price target:

UOB Kay Hian “hold” $2.01

UOB Kay Hian has maintained its “hold” call on Micro-Mechanics Holdings (MMH), with a higher target price of $2.01 as compared to its previous target price of $1.82.

Analyst Clement Ho said this was due to a strong earnings showing for the company in 4QFY2020. During the quarter, MMH recorded a net profit of $3.9 million, bringing its earnings to $14.7 million for FY2020. This also surpassed the brokerage’s estimates by 23%.

Ho said this is due to “resilient demand” for high-precision parts and tools, despite global lockdowns that have left industries at a standstill.

Customers have also increased their orders in 4QFY2020 to stock up on their inventory. This will prove beneficial to MMH in case of future lockdowns.

Furthermore, Ho also expects growth momentum in the semiconductor industry to continue, and “anticipates contin

ued strength going into the second half of 2020.”

According to World Semiconductor Trade Statistics, 2H2020 billings are projected at US$217.84 billion ($296.15 billion), 4.7% higher compared to 1H2020 and 0.9% higher compared to 2H2019.

The increase comes from integrated circuits (except analog), memory and logic. For 2021, the global semiconductor market is forecasted to grow 6.2% y-o-y, driven by double-digit growth in the memory segment.

Ho also believes MMH is “positioned as a key industry downstream supplier”, and cited management’s “astute positioning” as a leading parts and consumables supplier in the semiconductor industry.

This is reflected in its solid long-term revenue, with a compounded annual growth rate (CAGR) of 8.2% and net profit CAGR of 14.9% from FY2002 to FY2020, he says.

He also said the extensive product range, production scale and geographical coverage have put MMH in the lead among their peers and a trusted brand for customers.

Furthermore, the group’s stable gross profitability range between 46% and 63% since its listing (excluding the 2009 GFC figure of 39%) is a strong testament to its competitive edge and management’s ability to retain pricing power in the cyclical sector. — Lim Hui Jie