InvestIdeas

January 15, 2009, 7.34 pm (Singapore time)

Micro-Mechanics sees sharply lower Q209 profits, to cut pay 5-40%

By ANGELA TAN

Micro-Mechanics (Holdings) Ltd on Thursday said it expects to report a 'substantially lower net profit' for its fiscal second quarter 2009 compared to 2Q08.

It also warned it expects to report a decline in revenue for 2Q09, as compared to 2Q08.

It said the sharp and sudden contraction of the global economy in late 2008 had a severe adverse impact on the entire supply chain of the global technology sector.

Consequently, the group has witnessed deterioration in orders from customers during 2Q09, particularly in December when there was an unprecedented fall in customer orders across all its worldwide manufacturing locations.

It said the slowdown in business volumes at its new Custom Machining & Assembly (CMA) plant in the USA during 2Q09 has exerted further drag on the profit margins of its CMA business as the plant is still in the early phase of operations while operating costs are also higher there.

To lower its cost, the group plans to cut salaries by 5-40 per cent as well as cut headcount.

While the outlook has become more challenging, the directors wish to emphasize that the group maintains a healthy financial position with cash balances of more than S$10 million and no bank borrowings.


Source: Business Times

Micro-Mechanics Holdings
Jan 21 close: $0.37
OCBC Investment Research, Jan 21

REELING from enormity of slowing economy: In the face of a sharp and sudden contraction in the global economy, Micro-Mechanics (MMH) announced that the group has witnessed a deterioration in orders from its customers during Q2 FY2009, the last three months of 2008. In December, MMH faced an unprecedented fall in customer orders across its worldwide manufacturing locations, thus leading the group to expect a y-o-y and q-o-q decline in its Q2 FY2009 revenue.

While we had earlier anticipated in our December sector report that the slower sales in its core semi-conductor tooling business are likely to be cushioned by its custom machining and assembly (CMA) segment, we now understand from MMH that it is expecting slowdown at its CMA plant in the US as well.

Moreover, as a result of higher operating costs and slow ramp-up in the US facility, MMH is expecting it to exert a substantial drag on its Q2 FY2009 net profit and margins.

Given the severe downturn in the global technology sector, the group is putting in place several measures to structurally lower its cost base. Specifically, MMH is: 1) conducting a group-wide programme to review and reduce (as appropriate) the salaries of its employees by 5-40 per cent; 2) strategically streamlining its organisational structure through a reduction in headcount; and 3) accelerating the transfer of technology from its CMA plant in the US to its Penang plant in Malaysia to improve its cost-competitiveness. Apart from these, we note that the group is currently in the process of implementing an integrated IT system to improve its operational efficiency.

Retain 'hold' with lower fair value: While MMH has a relatively strong financial position (cash hoard of $12.8 million and zero bank borrowings as at end-September 2008), we believe that the semi-conductor industry capitulation, together with faltering business volume and high input costs at its US facility, is likely to cast a pall on its FY2009 financial performance and share price.

As such, we conservatively revise down our FY2009 sales and net profit forecasts by 13.4 per cent and 12.5 per cent, respectively, to account for the poorer outlook, and reduce our fair-value estimate to $0.31, now based on a 7 times blended FY2009/10 EPS ($0.38 on 8 times FY2009 EPS previously). However, as MMH has already encountered depreciation in its share price following the profit guidance, we maintain our 'hold' rating on the stock.
HOLD

Not vested. From OCBC:-

Micro-Mechanics: Another set of improved performance

Summary: Micro-Mechanics (MMH) reported a set of 1QFY11 results that were within our expectations.

Revenue came in at S$11.7m (+25.5% YoY, -0.8% QoQ), forming 24.4% of our FY11 sales forecast, while PATMI stood at S$2.0m (+46.1% YoY, 40.1% QoQ), meeting 29.8% of our full-year earnings estimate.

The improved performance, we note, was driven by higher sales contribution from both its semiconductor tooling business and Custom Machining and Assembly (CMA) segments.

In particular, its plant in US had also recorded its first monthly profit (S$50k) in Sep since its CMA operations began two years ago.

Going forward, management reiterated that it will expand its operations in China to capture the expected shift in chip manufacturing in the PRC, as well as replace the older equipment in the US plant.

However, MMH intends to maintain a cautious approach on spending in view of the current business volatility and uncertainty.

We will be attending the analyst briefing on Tue to get more details on its results and outlook. For now, we maintain our BUY rating but place our S$0.58 fair value under review. (Kevin Tan)

not vested

Micro-Mechanics, which makes high precision tools, said its net profit for the six months ended December fell 47 percent to S$2 million, hurt by slower sales due to global uncertainties.

Source: Reuters

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