Micro-Mechanics Reports 108.9% Net Profit Growth in Q2 FY2025 Amid Semiconductor Industry Recovery

Micro-Mechanics: Net Profit Grows 108.9% YoY in Q2FY2025

Overview Summary

Micro-Mechanics (Holdings) Ltd reported strong financial results for the second quarter (Q2) and half-year (1H) ended 31 December 2024. The company achieved a 108.9% year-on-year (YoY) net profit growth in Q2FY2025, supported by steady revenue growth and operational improvements. Despite global uncertainties, the company remains optimistic about the semiconductor industry’s recovery and has implemented key initiatives to sustain profitability and growth.

Key Points with Supporting Evidence

Net Profit Growth: “The Group’s net profit grew 108.9% YoY to S\$3.0 million in 2QFY2025 and net profit margin improved YoY to 18.1% (2QFY2024: 10.5%).” [[19]]
Revenue Growth: “For 2QFY2025, the Group’s revenue increased by 20.7% YoY to S\$16.3 million from S\$13.5 million in 2QFY2024.” [[17]]
Dividend Declaration: “An interim dividend of 3 cents per share (one-tier tax-exempt) was declared, to be paid on 18 February 2025.” [[22]]
Improved Capacity Utilization: “The Group’s average capacity utilization rate improved from 41% in 2QFY2024 to 47% in 2QFY2025.” [[18]]
Strong Cash Position: “The Group ended 2QFY2025 with cash and bank balances of S\$20.2 million and no bank borrowings.” [[22]]
‘Five-Star Factory’ Initiative: “The Group continues to benefit from its ‘Five-Star Factory’ initiative, which focuses on operational excellence, innovation, and workplace efficiency.” [[21]]
Restructuring at MMUS: “The Group achieved its second consecutive quarter of profitability at MMUS, with profit before tax of S\$316k in 2QFY2025, an increase of 47% from S\$216k in 1QFY2025.” [[21]]

Analysis of Key Points

Business Description

Micro-Mechanics is a Singapore-based company specializing in the manufacturing of precision tools and components for the semiconductor industry. Its two main business segments are Consumable Tools, which accounted for 78.1% of Q2FY2025 revenue, and Wafer Fabrication Equipment (WFE) parts. Its operations span across key markets like China, the USA, and Singapore, with China contributing 31.9% of 1HFY2025 revenue. The company has a competitive advantage in high-precision manufacturing and innovation-driven growth.

Financial Statement Analysis

Income Statement

The company’s revenue grew 20.7% YoY in Q2FY2025 and 10.8% YoY in 1HFY2025, driven by strong demand in both Consumable Tools and WFE parts. Gross profit margin improved to 47.5% in Q2FY2025, reflecting operational efficiencies despite a slight increase in cost of sales due to product mix.

Balance Sheet

The company remains financially robust, with total assets of S\$58.2 million as of 31 December 2024. The Group has no bank borrowings and maintains a strong cash position of S\$20.2 million, providing flexibility for future investments and dividend payouts.

Cash Flow Statement

Net cash from operating activities increased to S\$5.5 million in Q2FY2025 compared to S\$3.4 million in Q2FY2024. The company generated free cash flow of S\$0.8 million after deducting capital expenditures and dividend payments.

Strengths

Strong net profit and revenue growth signal robust demand and operational effectiveness.
A resilient balance sheet with no debt and substantial cash reserves ensures financial stability.
Ongoing initiatives like the ‘Five-Star Factory’ and MMUS restructuring indicate a focus on long-term operational excellence and profitability.
A consistent dividend payout policy demonstrates shareholder commitment.

Risks

Global macroeconomic and geopolitical uncertainties, such as US-China trade restrictions, could impact the supply chain and customer demand.
Higher cost of sales in Consumable Tools may affect profit margins if not managed effectively.

Questions for Further Research

What are the long-term growth prospects for the semiconductor industry, and how does Micro-Mechanics plan to capitalize on them?
How does Micro-Mechanics’ market share compare to its competitors in the Consumable Tools and WFE parts segments?
What additional measures are being planned to mitigate risks associated with geopolitical uncertainties?

Investment Recommendations

If Currently Holding the Stock

Investors holding the stock should maintain their position. The company’s strong financial performance, robust cash reserves, and consistent dividend policy make it a solid investment for long-term growth. The ongoing initiatives like the ‘Five-Star Factory’ and MMUS restructuring are expected to drive further profitability.

If Not Currently Holding the Stock

Investors not holding the stock may consider buying it at current levels, given the company’s strong fundamentals, growth trajectory, and healthy dividend yield. However, they should remain cautious of macroeconomic risks and monitor the company’s operational performance closely.

Disclaimer

The recommendations provided are based on the financial report for the second quarter and half-year ended 31 December 2024. Investors should conduct their own due diligence and consider their financial situation before making investment decisions.