Micro-Mechanics (Holdings) Ltd: Analyzing the Semiconductor Equipment Supplier’s Growth Potential

FPA Financial Corporation Pte Ltd | 14 March 2025

Micro-Mechanics (Holdings) Ltd: Navigating the Semiconductor Landscape

Micro-Mechanics (Holdings) Ltd (MMH) is a Singapore-based company that designs, manufactures, and markets high-precision tools and parts used in the assembly and wafer fabrication processes of the semiconductor industry. With five operating facilities across Singapore, Malaysia, China, the Philippines, and the U.S., MMH serves over 600 customers in the semiconductor sector.

Resilient Revenue Growth Amid Industry Headwinds

For the six months ended 31 December 2024 (1H FY2025), MMH reported a 10.8% increase in revenue to S$32.5 million, in line with the 6.5% rise in silicon wafer shipments. Gross profit grew even faster, rising 14.6% to S$16.0 million, driven by the higher proportion of revenue from non-USA markets, which have lower cost of sales. Profit after tax surged 46.6% to S$6.0 million.

Navigating Geopolitical Tensions

MMH has strategically navigated the ongoing geopolitical tensions, refraining from exporting between the U.S. and China to minimize potential trade restrictions. This approach is reflected in the diverging trends between USA revenue and equipment billings (excluding China), which fell 51.4% and 36.1%, respectively, from 1H FY2022 to 2H FY2024.

Dividend Yield Offers Attractive Valuation

While MMH’s current P/E multiple of 22.2x is higher than the peer average of 21.7x, its dividend yield of 3.77% is more attractive than the peer average of 3.37%. By averaging the target prices derived from P/E multiple and dividend yield analyses, we arrive at an overall target price of S$1.67, implying a 4.8% upside potential from the current share price of S$1.59.

Potential Catalysts for Growth

Two key potential catalysts for MMH’s growth include:
Advancement of semiconductor nodes: As nodes become more advanced, MMH’s ability to keep pace with the stringent requirements could drive higher demand for its products, particularly from its U.S. facility.
Higher-than-projected dividend growth: MMH’s history of maintaining high payout ratios when its cash balance exceeds S$20 million suggests the potential for further dividend increases, which could boost the share price.

Risks to Consider

Potential risks to MMH’s target price include:
Escalation of trade restrictions: Further tightening of U.S. semiconductor export controls, particularly targeting China, could adversely impact MMH’s revenue.
Global economic slowdown: A slowdown in the U.S. and China, key drivers of global growth, could weigh on semiconductor demand and MMH’s performance.
In conclusion, MMH’s resilient financial performance, attractive dividend yield, and potential catalysts for growth make it a compelling investment opportunity in the semiconductor equipment sector, though investors should be mindful of the geopolitical and macroeconomic risks.