Micro-Mechanics (Holdings)

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Rainbow 
MM@376
Presentation materials for 1H21 results briefing on 2 February 2021
https://links.sgx.com/FileOpen/Micro-Mec...eID=647001

Clement Ho@2 Feb 2021 UOB Kay Hian research paper 
https://research.sginvestors.io/2021/02/...02-02.html

After Clement release his research paper, we would expect Phillips and LimTan to publish their research paper soon.




Stay home and stay healthy, everyone.
Heart
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Rainbow 
MM@350

As expected, after Clement released his research report on MM, Paul Chew from Phillip securities also released his:
Outlook healthy but valuations stretched
Valuebuddies should be very happy to take note that as far as Paul is concern, there is nothing negative about Micro-Mechanics.

Also, we had been trying very hard to understand exactly what's Micro-Mechanics Moat (as it does not have any IP, Patents etc), we still don't know. Instead Paul wrote that it's probably called "High Barrier of entry" and this would sustain MM growth for next 2 years.
Big Grin
https://research.sginvestors.io/2021/02/...02-08.html

Enjoy:
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(09-02-2021, 09:06 AM)¯|_(ツ)_/¯ Wrote: MM@350

As expected, after Clement released his research report on MM, Paul Chew from Phillip securities also released his:
Outlook healthy but valuations stretched
Valuebuddies should be very happy to take note that as far as Paul is concern, there is nothing negative about Micro-Mechanics.

Also, we had been trying very hard to understand exactly what's Micro-Mechanics Moat (as it does not have any IP, Patents etc), we still don't know. Instead Paul wrote that it's probably called "High Barrier of entry" and this would sustain MM growth for next 2 years.
Big Grin
https://research.sginvestors.io/2021/02/...02-08.html

Enjoy:

MMH is a printer catridge biz model. It make drill head for tech industry to drill small hole in all kind of electric components. Drill head wear off hence need to be replace from time to time. You need reliable drill head to make sure high volume manufacturing not interrupted by wrong size of hole. MMH machine is automated, email your order and the machine make it. Labor only need to load raw material and maintain it if things go wrong. Barrier of entry is not only technical but reliability and the trust of customers.
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Rainbow 
MM@3.07

MM management don't care about MM share price.
This is very different from most (listed) company.

Thinking about PIL
... it is this concern that it's share price might drop drastically if a big block of shares selling into the market, that I guess, triggered fairy to make a move.

MM don't care.

MM zoom from 2.85 to 3.85 in 2 weeks and then into 4 effortlessly.

That's a bad news to valuebuddies because the price is not sustainable.

Selling come in force.

Today, touched 3 briefly.

MM management didn't do anything.

Smile

MAYDAY 五月天  - Because of You 因為你 所以我 
人生 只是 须臾的刹那
人间 只是 天地的夹缝

人们 何苦 要活成修罗

活在 执著 对错的牢笼

是你 帮我 停下了沙漏

是你 教我 别害怕闯祸
是你 让我 活得 与众不同


Gratitude.
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Rainbow 
MM@3.33
releasing the results for the three months ended 31 March 2021 (“3Q21”) on 30 April 2021.
https://links.sgx.com/FileOpen/MMH-Date%...eID=661891



Gratitude.
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Rainbow 
Paul Chew on MM 3May2021
[Image: Capture-1.png]

Q3 result
Rev S$17m (vs 16m)
GP  S$9m (vs 8m)
NP  S$4m (vs 3m)

9month
Rev S$54m (vs 47m)
GP S$29m (vs 25m)
NP S$13m (vs 10m)

The Negative
Gross margins lower than expected

We had expected record revenue and increase product complexity to lift margins, mirroring its FY17-18 upcycle when margins ere 57% and capacity utilisation, 60%.
Current utilisation is only 56%. Capex ramp in the past few years has yet to be fully utilised.

Maintain NEUTRAL with lower TP of S$3.02, from S$3.35

MMH pays attractive dividend yields of 4%, backed by net cash.  Its strengths include consumable semiconductor products, high gross margins of 55% and ROEs of 32%.



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Rainbow 
Micro-Mechanics @ 3.12
Good morning valuebuddies,
Another brilliant day started and hope that everyone had a great day ahead.

During the short time when MM rush up to $4, I couldn't help but sold some of my MM stocks.

The rationale was rather simple, the stocks go up too fast in too short timeframe.

As the price gradually settled down to low $3, I thought it might be good time to start buying again.

*** Not an advice to buy, it's just a mental notes for myself *** 
Big Grin 

Since I intend to buy again, I thought just do some revision and get some clarity on the investment merit for Micro-Mechanics.

I started by reading it's latest FAQ published during last year AGM.
As I read the elaborated FAQ, it's deja-vu.

For valuebuddies worth their salt, our first question was MM does not have competitors. Well that's what MM always says and our valuebuddies kept asking MM management, are you sure?
And, it seems that despite so many years, MM management answer to this question never change.

So, as a revision, let's take a closer look and internalise the model answer.
As this is the top FAQ, I can almost guaranteed that despite the same answer, this question about MM's competitors will pop up again, every year.  Tongue

Who are your major competitors? 

Micro-Mechanics operates in the global semiconductor industry which is keenly competitive and constantly evolving as a result of disruptive technologies and shifts in the business environment. 

Our semiconductor tooling business is primarily centred in Asia and serves a world-wide base of customers. While we are not aware of a similar company that is directly comparable to MicroMechanics in terms of product range, scale and geographical coverage, we do face a variety of competitors ranging from small local machine shops to a few larger multi-national companies. 

In the “nano” world of the semiconductor industry, it has become increasingly challenging to manufacture tools and parts to support the demanding needs of customers for greater precision, flawless quality, reliability and cleanliness. In the future, we think there may only be a handful of suppliers capable of meeting these stringent requirements and our goal is to continually enhance our capabilities to become a leading Next Generation Supplier in this specialized market for high precision, process-critical tools in the semiconductor supply chain. 

The Group’s business in the manufacture of process-critical parts for wafer-fabrication equipment makers faces different competitive challenges. While this space offers a much larger addressable market size, there are also entrenched suppliers including some of the world’s biggest contract manufacturers in addition to small machine shops. As a result, we are working to become an elite supplier of critical parts used in semiconductor wafer-fabrication, with competitive advantages so far not seen by others in terms of quality, repeatability and efficiency. 

[b]Can you describe your competitive edge over other competitors? 
What is your economic moat?
[/b]

In essence, Micro-Mechanics’ key competitive advantages include our proprietary design capabilities and manufacturing know-how; our sound financial position which enables the Group to invest in automation and advanced equipment; as well as our ability to provide fast, effective and local support to our global customers. At Micro-Mechanics, we have a consistent focus on our gross profit margin which we believe is a key measure of our competitive strength, our focus on customers and the value that we bring to them.

Well, the reason why valuebuddies keep asking about MM's claim that it does not have a competitor is like so ah beng.   Tongue

In any case, we don't really mind asking this question year after year because it sounds like music to the ear.  Big Grin

The next question is also a favourite among valuebuddies.
I can guarantee that this will come out every year too.

I can't really recall, it could be a financial analyst or a financial bloggers who commented that MM has more than 10% of it's sales coming from major customers and hence the questions implied that this is high concentration risk arriving from these major customers.

Frankly speaking, when I first saw the question and I immediately noticed where this question came from.
It's not referring to MM.
If you're valuebuddies worth your salt, then I suppose you're aware of the Precision manufacturing companies in Singapore. 
Now, this would be a real major customer concentration risk.

For the younger valuebuddies, not too late to read the other Precision manufacturing companies in Singapore.  I am sure there are gems to be found too.

So, this question actually refers to those manufacturing companies but not MM.

Then, again, why this concern about high customer concentration risk is raised?
It's clearly not applicable to MM, so why it was raised again, again and again?

I suspect it's a school teacher questions referring to the general observation of Singapore precision manufacturing company and the students take it that it also apply to MM.

Or, I suspect, the person has a pre-conceived idea that Precision manufacturing co in Singapore typically has high customer concentration and that would implied to MM too.

In any case, I did the sum and I know that relative to other co in the same industry, this is not a (major) risk to MM and of course, I had to agree, that high concentration risk is a generally true to Singapore Precision manufacturing co in Singapore. 
(dear valuebuddies is encourage to exercise your level 2 thinking on the implication of this observation)

Let's see what' the model answer:
10 major customers provided 32% of FY2020 revenue. Does the company see a customer concentration risk here?

The Group has a large base of over 600 active customers. It does not have concentrated exposure to any single customer as none accounted for more than 10% of Group revenue in the last five financial years up to FY2020.

Again, if you compare this to Singapore precision manufacturer, you will have a sense of why MM is the outstanding one that I prefer to invest my hard-earn $$$.
Heart

So, what would/should be the risks that we are concern?
I think #1 is MM's ability to continue to innovate.
What I meant is MM kept talking about the difficulties of going beyond sub 10nm technology.
Granted MM had some breakthru in material science (likely with the help of ASTAR) but in my heart, when I read this statement, it implies that they had not over come the difficulties of going beyond sub 10nm challenge.
You know what I mean?
If they had cleared the hurdle, why would they says break thru in material science (only).  
This for me would be the major risk of owning MM for long term.
Heart 

Shorter term, the risk would be the fluctuation of the revenue.
Two factors reported by MM management which to me were real risks.
1. Short term un-sustainable ramp up of inventory by it's customers (everywhere) due to anticipated supply chain (logistic) disruption.  
It's a homework for you and I won't elaborate more.

2. Closure of factories due to impact of C19 aka workers kana C19 and factories forced to close down.
The impact is unknown and hence posted a great uncertainty on the impact of the biz.

Thanks for reading.
Gratitude!
Heart 

Have a nice weekend.
Enjoy Alan:
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Rainbow 
MM@310

Good morning valuebuddies,
Yesterday Royston Yang@The Smart Investor published an article on Micro-Mechanics: 
3 Singapore Dividend Growth Stocks to Watch for 2021

https://thesmartinvestor.com.sg/3-stocks...dividends/


It's not unreasonable to gun for both dividends and growth.
For the first nine months, rev up 14% yoy to $54m, NP up 24% yoy to $13m.  MM bode well into growing theme such as EV, 5G, AI/ML, Cloud/edge computing.
It also paid annual dividend every single year since it's IPO.
In fact, if you look at the trend, it's actually a powerful growing dividend.

Coincidentally, RT asked whether Paul had considered Micro-Mechanics?
Paul says:
"Thanks RT
Yes, it's a good dividend stock
Might enter to get some if price corrects down a bit"

Of course, at current price of 310, it's of fair value (don't quote me, I'm just using Market efficiency theory).

Correct a bit would be a really nice entry point.

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Rainbow 
The next most frequently asked questions focus on US-China Trade war and in particular how badly China business will drop and how much MMUS business would benefit.

Valuebuddies were expecting a China rev drop because manufacturing plants had been shifting out of China into Vietnam, Cambodia etc.  This mass migration is widely reported and for those who works in the manufacturing industry, you should know that this is real and not just hearsays. So, bottomline, what can Micro-Mechanics do to mitigate the risk?

Similarly, "Make America Great Again" contains a lot of hope for MMUS.  Valuebuddies were very clear that MMUS had always been struggling to achieve a good business outcome.  Chris was given the responsibility to manage MMUS since the merger.  No doubt, a lot of energy and $$$ had injected to build a great automated, perfect parts factory, the result is far from satisfactory. 

First thing first, one of the investment merit for MMUS was to latch on it's customer base and increase MM's TAM.  In reality, this does not works and MMUS had to return back to its niche market/comfort zone to take shelter.  Moving forward, would MMUS reach out to these customers? Would MMUS consider expanding its TAM beyond semicon?

These 2 faq: one on MM's competitors or moat; another on impact of US-China trade war, would continue to be asked in every AGM. 
Valuebuddies who is keen to learn more on the business aspect of fundamental analysis, Micro-Mechanics would be a interesting case study, isn't it?

A journey of a thousand miles begin with a single step.
Micro-Mechanics is a company that build to last.
Would you like to start your journey of discovering a company that build from good to great with MM?
[Image: f60ab5306d565457.jpg]

Gratitude.
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Rainbow 
MM@313

These 2 Frequently asked questions (FAQ) is very important:
1. What's MM's moat?
2. When will MMUS turnaround and start to expand it's TAM?

Valuebuddies asking these 2 FAQ again and again, is not because they don't know the answer.  Of course, any valuebuddy worth his salt will know the answer.  These questions is to validate whether there is a change in directions.  Any changes to the model answer will be carefully analyst to see how it impact MM's future.

Bear in mind, a lot is in steak here.  Tongue

Some valuebuddies is asking what are some of the locally groom great company?

I would like to cite Sudhan of Seedly post (click to read):
I like to look out for companies that increase their dividends yearly on a consistent basis.

Such a company usually signals to the market that it has a great underlying business. 


[Image: Micro-Mechanics-dividend-history.png]

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