DBS Group Research analyst Ling Lee Keng has kept a “hold” rating on Micro-Mechanics Holdings (MMH) as the group’s FY2022 revenue reached a new record of $82.5 million, up 12% y-o-y.
The group’s revenue stood in line with Ling’s expectations, while MMH’s net profit stood above expectations by 13%. This was driven by tight control on overhead expenses.
On this, the analyst has kept her target price unchanged at $3.42. However, she has raised her FY2023 earnings forecast by 12% with revenue growth of 10% for the same year, while assuming lower gross margins of 52.0% and net margins of 22.7% amid continued inflationary pressures.
“We anticipate gross and net margins to normalise to 53.0% and [around] 23.5% by FY2024 as inflationary pressures ease,” Ling writes.
The group remains in a sound financial position, says Ling. As at June 30, its total assets stood at $73.7 million, with shareholders’ equity at $58.3 million, and cash and cash equivalents at $20.4 million, with no bank borrowings.
The analyst anticipates gross and net margins to normalise to 53.0% and around 23.5% by FY2024 as inflationary pressures ease.
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In addition, global semiconductor revenue is forecast to grow by 7.4% in 2022, where World Semiconductor Trade Statistics (WSTS) estimates another 4.6% growth in 2023.
“We anticipate 2022/2023 to see muted growth relative to past years although the long-term uptrend remains intact, driven by structural trends such as Internet of Things (IoT), 5G adoption, and more,” writes Ling.
Moreover, the consumable nature of Micro-Mechanic Holdings’ back-end tools and front-end equipment parts supports regular demand across the cycle. In most downturn periods, the group’s revenue was observed by the analyst to be relatively less impacted compared to its peers.
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“While we believe the outlook remains healthy, we are cautious of higher raw material and labour prices,” Ling adds.
As at 11.37am, shares in Micro-Mechanics Holdings are trading at 3 cents down or 0.92% lower at $3.22 at FY2023 P/B ratio of 7.3x and dividend yield of 4.5%.
