Look at Micro-Mechanics' saving grace

There's some good news amid 5.6% profit dip.

According to OCBC, in its recent 1QFY13 results, MMH recorded YoY declines in revenue and net profit of 4.6% and 5.6%, respectively. However, on a positive note, it managed to deliver a fifth consecutive quarter of steady gross margin increment at its Semiconductor Tooling division, despite tough industry conditions.

Here's more from OCBC:

This was the result of management’s efforts to streamline its manufacturing processes and control its headcount. MMH’s debt free balance sheet also meant that it ended the Sep quarter with a net cash position of S$8.0m (13.8% of market cap), while free cash flows of S$3.2m were generated in 9MCY12.

Although global chip sales are forecasted to decline by an average of 1.3% in 2012, based on some of the industry watchers we have tracked, industry conditions are expected to improve in 2013, with an average 6.5% rebound in sales projected.

This is also aided by the inventory correction in the industry over the past several months, which will spill over to the start of 2013. We opine that the increasing use of semiconductor content across a broad range of industries such as electronics, medical, aerospace and automotives illustrates the longer-term viability of the industry, although uncertainties remain in the near-term.

In light of the expected recovery in the semiconductor industry in 2013 and MMH’s continuous efforts to improve its product cycle time to boost its competitive advantage, we raise our valuation peg from 9x to 11x FY13F EPS, which is slightly below its 4-year average forward PER.

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