Micro-Mechanics (Holdings) Ltd: Semiconductor Equipment Leader Faces Headwinds
FPA Financial Corporation Pte Ltd 14 March 2025
Micro-Mechanics (Holdings) Ltd: Balancing Growth and Challenges in the Semiconductor Landscape

Micro-Mechanics (Holdings) Ltd: Balancing Growth and Challenges in the Semiconductor Landscape

Steady Revenue Growth, but Valuation Concerns Remain

Micro-Mechanics (Holdings) Ltd (MMH), a leading designer and manufacturer of precision tools and parts for the semiconductor industry, has seen a steady rise in revenue over the past year. However, concerns over its valuation compared to industry peers continue to linger.
In the six months ended 31 December 2024 (1H FY2025), MMH’s revenue increased by 10.8% to S$32.5 million, driven by a 6.4% rise in consumable tools revenue and a 30.4% jump in Wafer Fabrication Equipment (WFE) parts revenue. Gross profit rose by an even stronger 14.6% to S$16.0 million, leading to an expansion in gross margin from 47.5% to 49.1%.

Profitability Surge, but Dividend Payout Ratio Concerns

Profit after tax and for the period surged by 46.6% to S$6.0 million, translating to a 46.6% increase in Earnings Per Share (EPS) to 4.34 cents. However, the company maintained its Dividend Per Share (DPS) at 3.00 cents, resulting in a payout ratio of 69.2% – a significant drop from the previous period’s 101.4%.

Valuation Analysis: Overvalued on P/E, Undervalued on Yield

Our peer comparison analysis reveals a mixed picture for MMH. The company is currently trading at a Price-to-Earnings (P/E) multiple of 22.2x, which is higher than the peer average of 21.7x, suggesting it is overvalued. However, its current dividend yield of 3.77% is more attractive than the peer average of 3.37%, indicating the stock may be undervalued.
By averaging the estimated target prices based on P/E multiple and dividend yield, we arrive at an overall target price of S$1.67, which implies an upside potential of 4.8% from the current share price of S$1.59. This limited upside potential may justify a “hold” recommendation.

Potential Catalysts and Risks

Potential catalysts for MMH include the continued advancement of semiconductor nodes, which could benefit the company’s U.S. facility, as well as the possibility of higher-than-projected dividend increases. However, risks include the escalation of trade restrictions between the U.S. and China, as well as a potential global economic slowdown that could impact semiconductor demand.

Conclusion: Cautious Optimism Amid Industry Headwinds

While MMH has demonstrated steady revenue growth and a surge in profitability, the company’s valuation concerns and the industry’s broader challenges warrant a cautious approach. Investors should closely monitor the company’s ability to navigate the evolving semiconductor landscape and any potential impact on its financial performance and shareholder returns.