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Micro-Mechanics Manufactures Higher Earnings

Micro-Mechanics Holdings Ltd. (SGX: 5DD) its results on Monday evening after close of market. Founded in 1983, Micro-Mechanics designs, manufactures and markets high precision tools, parts and assemblies for the semiconductor, medical, aerospace and other high technology industries. Its core products are used in the die attach process and wire bond process and can be grouped into three main categories; die attach tools, wire bond tools and custom tools.

Basic Figures

For the 1st quarter 2014, revenue came in 12% higher at S$11.1m compared to S$9.9m a year ago. Meanwhile, 1Q14 net profits sky-rocketed 83.9% to S$2.2m in tandem with increased sales, aided by a successful tightening of the operating expenses. In fact, the operating expenses to revenue ratio went down from 34.1% during FY2009 to 27.0% as of 1Q2014, indicating an improvement of nearly 7%.

micro mechanics chart

By looking at the chart above, it shows that Micro-Mechanics have achieved stable growth in the group’s gross profit margin (GPM) over the years. The continued increase in GPM can be attributed to the rising margins commanded by the Custom Machining & Assembly (CMA).

The improvement in GPM over the years is well worth another look especially if you take into consideration of the constant price pressures typical of the industry. The incredible 50% margin also win hands down when compared to other companies involved in the mechanical industry such as Hisaka Holdings (SGX: FV2) and World Precision Machinery (SGX: B49)

As at 30 September 2013, the Group maintained a robust balance sheet with total assets of S$46.6 million and shareholders’ equity of S$39.6 million. More importantly, the company holds cash and cash equivalents of S$11.2 million and no bank borrowings.

CEO of Micro-Mechanics, Mr Chris Borch said, “During 1Q14, we continued to see promising results from the investments and energy we have put into improving the Group’s sales and operational efficiency.”

He continued, “To counter the cost and pricing pressures that are typical of the semiconductor industry, we plan to work non-stop to improve our operational efficiency, cost structure and cycle time.”

Valuation

Shares of Micro-Mechanics closed unchanged at S$0.505 on Monday. At that price, the shares are valued at 11.45 times trailing earnings and carry a dividend yield of 5.88% based on its pay-out last year. Its Net Assets Value (NAV) per share currently stands at 28.52 cents too.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.