If you are looking for a Singapore stock to buy for the long term, look no further than Micro-Mechanics (Holdings) Ltd (SGX: 5DD). The company is involved in the designing, manufacturing, and marketing of consumables and precision tools that are used in the semiconductor industry.
Let’s look more closely at why Micro-Mechanics should be a keeper in your stock portfolio.
FY2019 report card
Micro-Mechanics’ latest financials were anything but spectacular.
Revenue for its full year ended 30 June 2019 (FY2019) declined by 7.3% to S$60.3 million thanks to a slowdown in the global semiconductor industry. This fall in the top line, together with higher depreciation costs from capital investments, caused the company’s earnings to plummet 24.5% to S$12.9 million.
Even though earnings fell, Micro-Mechanics did not cut its dividend for the year. Its total dividend for FY2019 was maintained at S$0.10 per share. Micro-Mechanics said the stable dividend payout is in the spirit of “keeping with its long-held practice of rewarding shareholders.” It also added that maintaining the dividend was a show of confidence in both the company’s and the semiconductor market’s long-term prospects.
Micro-Mechanics’ balance sheet also remains rock solid. As of 30 June 2019, Micro-Mechanics had S$21.9 million in cash and cash equivalents with no bank borrowings. Its strong balance sheet, together with healthy free-cash-flow generation, will allow the company to wade through the current tough conditions.
Cyclicality is normal for the semiconductor industry.
Global chip sales fell 14.5% in the first half of 2019, according to the Semiconductor Industry Association. The World Semiconductor Trade Statistics now forecasts worldwide chip sales to decrease by 12.1% to US$412 billion this year.Source: Micro-Mechanics FY2019 earnings presentation
However, investors in the semiconductor industry should look at long-term trends instead. Over the long run, demand for Micro-Mechanics’ products should be aplenty given the ever-increasing use of chips in our everyday lives.
To add more credence, Singapore’s Deputy Prime Minister Heng Swee Keat said recently that despite the slowdown, the future of the global semiconductor industry remains bright, and global demand in the long term looks healthy.
Paid to wait
Micro-Mechanics may seem like an unconventional pick for investors to buy due to the current slowdown in the semiconductor industry. But investors are paid to wait for the cycle to turn around as Micro-Mechanics pays great dividends; its dividend per share has grown 1,150% overall since FY2003.
The semiconductor sector has a high chance of making a comeback since there’s continued demand from technologies and devices that require chips, such as smartphones, artificial intelligence (AI), and fifth-generation (5G) cellular communication.
At Micro-Mechanics’ current share price of S$1.63, it has a dividend yield of 6.1% (including FY2019 special dividend) and a price-to-earnings ratio of around 18.
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.