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What Investors Should Know About Micro-Mechanics (Holdings) Ltd’s Fiscal 2019 Second-Quarter Earnings

Micro-Mechanics (Holdings) Ltd (SGX: 5DD) is a producer of consumable parts that are needed in the assembling and testing of semiconductors. On Saturday, the company announced its financial results for the second quarter of its fiscal year ending 30 June 2019 (FY2019). Let’s look at some of the key highlights of the announcement here.

Show me the money

Revenue for the second quarter dipped 3.1% year-on-year to S$15.2 million. The fall was mainly due to lower sales from China, Singapore, Europe and the rest of the world. However, higher sales from the Philippines, Malaysia, USA and Taiwan partially offset the fall. Without the impact from the depreciation of the Chinese yuan and Philippine peso against the Singapore dollar, revenue for the 2019 second-quarter would have been higher.

Gross profit margin for the second quarter was 52.4% compared to 56.1% one year ago largely due to higher production headcount and higher depreciation expenses from machines purchased in FY2018.

Due to lower revenue and gross profit margin, net profit slumped 20% to S$3.1 million. Earnings per share for the quarter fell to 2.25 cents from 2.81 cents as a result.

As of 31 December 2018, Micro-Mechanics had S$20.4 million in cash and cash equivalents with no debt, a decline from the end of June 2018 where it had S$21.1 million in net cash.

Operating cash flow for the reporting quarter tumbled 23.6% from S$7.5 million to S$5.8 million. Capital expenditure fell from S$3.8 million to S$0.8 million, resulting in free cash flow of S$5.0 million for the reporting quarter, an improvement from S$3.7 million a year ago.

For the 2019 fiscal year, Micro-Mechanics forecasts lower spending on equipment and has reduced its capital expenditure budget to S$5 million from a previous estimate of S$6 million. Thus far, the company has spent S$1.5 million of the projected S$5 million.

The board has declared an interim dividend of 4.0 Singapore cents, unchanged from a year ago.

Looking ahead

Moving into 2019, the semiconductor industry has slowed down considerably. In its latest forecast on 27 November 2018, the World Semiconductor Trade Statistics said it foresees the global semiconductor market in 2019 to grow at a slower rate of 2.6% to US$490 billion.

Such short-term fluctuations in the industry are common. As investors, we should focus on the long-term instead. Micro-Mechanics said the following in its latest earnings update:

 “Against this backdrop of slowing industry conditions and, hence lower demand for the tools and parts that we manufacture for semiconductor assembly and wafer fabrication, the Group still performed reasonably well in 1H19. As cyclical conditions are typical for the semiconductor industry, particularly for wafer fabrication equipment, we prefer to focus on the industry’s long-term trends and try not to get side-tracked 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 Micro-Mechanics’ success lies in our continuing ability to seize long-term opportunities and correctly identify the initiatives and investments that bring value to our customers as the chip industry adopts processing methods for 10 nanometer and below device geometries.”

On Friday, Micro-Mechanics’ share price closed at S$1.69, giving a trailing price-to-earnings ratio of 15 and a dividend yield of 5.3%, excluding any 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. Motley Fool Singapore contributor Sudhan P owns shares in Micro-Mechanics.