UOB Kay Hian has maintained its “hold” call on Micro-Mechanics Holdings (MMH), with a higher target price of $2.01 as compared to its previous target price of $1.82.
Analyst Clement Ho said this was due to a strong earnings showing for the company in 4Q20. During the quarter, MMH recorded a net profit of $3.9 million, bringing its earnings to $14.7 million for FY20, and surpassing the brokerage’s estimates by 23%.
Ho said this stemmed from “resilient demand” for high-precision parts and tools despite global lockdowns and near shutdowns of whole industries.
He said from his understanding, customers have increased their orders in 4Q20 to stock up on their consumables inventory - hence benefitting MMH - in case of a subsequent wave of lockdowns.
Furthermore, Ho expects growth momentum in the semiconductor industry to continue, and “anticipates continued strength going into the second half of 2020.”
According to World Semiconductor Trade Statistics, 2H20 billings are projected at US$217.84 billion ($296.15 billion), 4.7% higher compared to 1H20 and 0.9% higher compared to 2H19.
The increase comes from integrated circuits (except analog), memory and logic, and for 2021, the global semiconductor market is forecasted to grow 6.2% y-o-y, driven by double-digit growth in the memory segment.
Ho also believes MMH is “positioned as a key industry downstream supplier”, and cited management’s “astute positioning” for MMH as a leading parts and consumables supplier in the broad spectrum of the semiconductor industry
This reflected in its solid long-term revenue compounded annual growth rate (CAGR) of 8.2% and net profit CAGR of 14.9% from FY02 to FY20, he says.
He also said the extensive product range, production scale and geographical coverage have put MMH in a superior position among downstream peers, providing customer stickiness.
Furthermore, the group’s stable gross profitability range between 46% and 63% since its listing (excluding the 2009 GFC figure of 39%) is a strong testament to its competitive edge and management’s ability to retain pricing power in the cyclical sector.
As at 4.38pm, shares of MMH were trading at $2.23, with a FY21 price to book ratio of 5.3 and dividend yield of 5.5%
