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What Investors Should Know About Micro-Mechanics (Holdings) Ltd’s FY2018 Earnings

Micro-Mechanics (Holdings) Ltd (SGX: 5DD) is involved in the designing, manufacturing, and marketing of consumables and precision tools that are used in the semiconductor industry.

On Saturday, the company announced its financial results for the full year ended 30 June 2018 (FY2018).

Financial highlights

Revenue rose 13.8% to an all-time high of S$65.1 million. The higher revenue was due to improved sales achieved by Micro-Mechanics in its major geographical markets.

In FY2018, the company saw increases in sales mostly in China, the USA and the Philippines. Notably, sales in China increased by 21% to S$18.0 million to remain the company’s largest market with 27% of overall revenue.

In its earnings update, Micro-Mechanics said that China continues to develop into a major centre for global chip manufacturing. The company added that it “remains focused on strengthening the operations in Suzhou to ensure fast, effective and local support to our customers.” Due to its efforts in China, Micro-Mechanics has benefited from multi-year sales growth in the country.

USA was Micro-Mechanics’ second largest market, where revenue grew 33% to S$12.2 million.

Net profit rose 16.1%, also to a record high, of S$17.1 million. As a result, diluted earnings per share climbed from 10.62 cents in FY2017 to 12.33 cents in FY2018.

As at 30 June 2018, Micro-Mechanics had S$21.1 million in cash and cash equivalents with no debt. This marks a slight decline from the end of June 2017 when it had S$23.4 million in cash and zero debt.

Operating cash flow improved by 23.8%, from S$18.1 million in FY2017 to S$22.4 million in FY2018. Due to a sharp increase in capital expenditure from S$5.1 million to S$12.1 million, Micro-Mechanics’ free cash flow for FY2018 fell by 20.8% to S$10.3 million.

A final dividend of S$0.05 per share and a special dividend of S$0.01 per share was declared. Together with the interim dividend of S$0.04 per share, the total dividend for FY2018 comes to S$0.10 per share, up 20% from S$0.08 per share for FY2017.

Looking ahead

Worldwide chip sales were up 20.4% in the first six months of 2018. However, the World Semiconductor Trade Statistics (WSTS) forecasts the industry’s growth to moderate to around 12.4% for the whole of 2018, implying that growth will slow down to between 4% and 5% for the second half of the year. For 2019, WSTS expects chip sales to grow at a slower 4.4%.

But Micro-Mechanics’ chief executive, Chris Borch, is not worried about the short-term fluctuations in the industry, saying:

“As such cyclicality is typical for the semiconductor industry, our approach is to focus on its long term trends and not to get preoccupied by short-term variations. We continue to believe the semiconductor industry is poised for a prolonged period of solid growth as chips are becoming increasingly embedded in nearly every aspect of modern life, from today’s smart phones to tomorrow’s driverless cars. Hence, the key to the Group’s success lies in our continuing ability to seize long-term opportunities and correctly identify the initiatives and investments that bring value to our customers.”

The Foolish takeaway

Micro-Mechanics had a great FY2018 with record revenue and net profit. Going forward, it could see short-term weakness in its business, but for the long-term, the company should do well due as chips are becoming increasingly ubiquitous in our lives.

Micro-Mechanics shares are currently going at S$1.86 apiece, giving a trailing price-to-earnings ratio of 15.1 and a trailing dividend yield of 5.4%, including the special dividend.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Micro-Mechanics (Holdings) Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Micro-Mechanics (Holdings) Ltd.