<Results First Take> Micro-Mechanics 1H22 Results Aligned with Expectations
- 1H22 Results aligned with expectations, revenue making up c. 50% of our full year forecasts
- (+) 1H22 Revenue growth of 11%, driven by higher sales growth from China, US and Malaysia. 1H22 Gross margins remained firm at 54.4%, aligned with 1H21 margins
- (-) Some challenges around material procurement and manpower shortages, which led to lower than expected sales volume from the US subsidiary, though financial impact remains limited for the time being
- We maintain a BUY call with a TP of S$4.05
Financials remain firm. The Group’s net profit rose 4.6% to S$9.5 million on the back of a 10.7% growth in revenue to S$40.8 million in 1H22. The Group’s revenue growth in 1H22 was attributable mainly to higher sales in its three largest geographical markets – China, the USA and Malaysia – amid continued growth in the global semiconductor industry.
Healthy gross margins maintained at 54.4% in 1H22, versus 54.3% in 1H21, despite price increases for raw materials and wage increases (as part of the Company’s yearly review process).
For FY22, the Group has declared an interim dividend of 6 SGD cents per share, aligned with the interim dividend declared for FY21. Interim dividend declared represents 88% of EPS of 6.85 for 1H22 and c.1.8% dividend yield based on the Group’s latest share price.
Slight negative impact from supply chain disruptions. During 1H22, the factory in the USA (“MMUS”) had difficulty obtaining on a timely basis some of the basic materials required for its production operations, such as aluminium and steel. Together with rapidly rising prices for such materials and manpower shortages that affected the timely delivery from some of the suppliers that MMUS depend on, the sales and results of MMUS in 1H22 were lower than what management had anticipated. Even though MMUS had received a record number of new orders during this period, the Group is concerned that the growing possibility of a worsening supply-chain situation in the coming months could affect its operations and performance.
The Group has to-date not witnessed any significant impact on its financial results from the aforesaid factors, and will continue to monitor developments around its supply-chain. We find some comfort that the Group is able to maintain robust revenue growth and margins in 1H22, in light of the aforesaid factors.
Sound financial position. As at 31 December 2021, the Group remained in a sound financial position with a balance sheet that had total assets of S$70.4 million, shareholders’ equity of S$56.6 million, cash and cash equivalents of S$18.3 million and no bank borrowings. We like the Group’s strong balance sheet, in which we believe its zero debt could potentially help the Group tide through future industry downturns more effectively.
Continued capex. The Group continues to focus on automation and improving operational efficiency. During 2Q22, Micro Mechanics spent S$1.1 million primarily for new equipment, bringing total capital expenditure for 1H22 to S$1.4 million. During FY2022, the Company expects to spend about S$6 million on new equipment.
Industry outlook remains intact. Based on latest available data published by Semiconductor Industry Association, global chip sales in Dec 2021 grew 2.9% Q-o-Q and 25.4% Y-o-Y. Going forward, Gartner and World Semiconductor Trade Statistics (WSTS) estimates another c. 8% growth in global semiconductor revenue in 2022, which should bode well for semicon players such as Micro Mechanics. We note a strong positive correlation of c. +0.90 between global chip sales and Micro Mechanic’s share price.
We maintain a BUY call with a TP of S$4.05.
| Key Financial Summary | |||||||||||
| 3 Months ending | Sep-20 | Dec-20 | Mar-21 | Jun-21 | Sep-21 | Dec-21 | % Change | % Change | % Change | ||
| Fiscal Quarter (S$m) | 1Q21 | 2Q21 | 3Q21 | 4Q21 | 1Q22 | 2Q22 | Q-o-Q | Y-o-Y | 1H21 | 1H22 | H-o-H |
| Revenue | 18.1 | 18.7 | 17.7 | 19.1 | 20.5 | 20.4 | 0% | 9% | 36.9 | 40.8 | 11% |
| Singapore | 1.9 | 1.7 | 1.6 | 2.0 | 1.7 | 1.5 | -11% | -10% | 3.6 | 3.2 | -10% |
| Malaysia | 2.8 | 3.1 | 2.7 | 3.0 | 2.9 | 3.4 | 17% | 9% | 5.9 | 6.3 | 6% |
| Philippines | 1.5 | 1.6 | 1.4 | 1.4 | 1.4 | 1.4 | -2% | -14% | 3.1 | 2.8 | -10% |
| Thailand | 0.3 | 0.5 | 0.3 | 0.4 | 0.3 | 0.3 | 3% | -32% | 0.8 | 0.7 | -17% |
| China | 5.4 | 5.8 | 5.9 | 5.9 | 7.3 | 7.3 | 0% | 26% | 11.2 | 14.6 | 30% |
| USA | 3.7 | 3.8 | 3.5 | 3.8 | 4.0 | 4.1 | 4% | 9% | 7.5 | 8.1 | 9% |
| Europe | 0.6 | 0.6 | 0.6 | 0.7 | 0.8 | 0.6 | -20% | 0% | 1.2 | 1.4 | 13% |
| Japan | 0.3 | 0.3 | 0.2 | 0.3 | 0.3 | 0.3 | 0% | 7% | 0.6 | 0.6 | 7% |
| Taiwan | 1.3 | 1.1 | 1.1 | 1.3 | 1.3 | 1.1 | -14% | 2% | 2.4 | 2.4 | 1% |
| ROW | 0.3 | 0.2 | 0.4 | 0.3 | 0.5 | 0.3 | -45% | 30% | 0.5 | 0.7 | 46% |
| EBIT | 6.0 | 5.7 | 5.4 | 6.2 | 6.7 | 6.1 | -8% | 7% | 11.6 | 12.8 | 10% |
| Net Profit | 4.7 | 4.5 | 4.2 | 4.8 | 5.0 | 4.6 | -8% | 2% | 9.1 | 9.5 | 5% |
| Gross Margins (%) | 54.8 | 53.9 | 54.5 | 54.0 | 55.5 | 53.3 | – | – | 54.3 | 54.4 | – |
| EBIT Margins (%) | 32.8 | 30.3 | 30.4 | 32.4 | 32.5 | 30.0 | – | – | 31.6 | 31.3 | – |
| Net Profit Margins (%) | 25.6 | 23.8 | 23.6 | 25.0 | 24.3 | 22.4 | – | – | 24.7 | 23.3 | – |
Source: Company, DBS Bank
| Critical Factors | |||||||||
| 3 Months ending | Sep-20 | Dec-20 | Mar-21 | Jun-21 | Sep-21 | Dec-21 | Q-o-Q | Y-o-Y | |
| Fiscal Quarter | 1Q21 | 2Q21 | 3Q21 | 4Q21 | 1Q22 | 2Q22 | Impact on share price/fundamentals | ||
| Macro | |||||||||
| Global Chip Sales (US$b) | 37.86 | 39.63 | 41.05 | 44.53 | 48.28 | 49.69 | 2.9% | 25.4% | Positive correlation of +0.89 with share price |
| Semiconductor Equipment Sales (US$m) | 2.74 | 2.68 | 3.27 | 3.69 | 3.72 | n.a. | 0.8% | 35.5% | Positive correlation of +0.93 with share price |
| Company | |||||||||
| Gross Margins (%) | 54.8 | 53.9 | 54.5 | 54.0 | 55.5 | 53.3 | – | – | Impact on fundamentals |
| Capex, Quarterly (S$m) | 2.27 | 2.98 | 0.41 | 1.12 | 0.30 | 1.11 | – | – | Positive correlation of +0.26 with share price |
Source: Bloomberg Finance L.P., Semiconductor Industry Association (SIA), World Semiconductor Trade Statistics (WSTS), Company, DBS Bank
Note: n.a. = Information not available