+ Improvement in QoQ performance. A positive has been the (seasonal) rebound in sales and margins in the September quarter.
+ Net cash on balance sheet 2nd highest since listing. MMH exited the September quarter with net cash of S$24.3mn, 2nd highest since listing.
– 5th consecutive quarter of revenue contraction. Revenue fell for the 5th consecutive quarter YoY in 1Q20. Admittedly, it is also the 5th consecutive miss of our revenue estimates. After the bumper semiconductor ramp in 2018, revenues for MMH are returning to steady-state annual revenues in the mid-S$50mn. We are not lowering our revenue estimates as we are modelling in recovery in 2H20.
Despite the laudable effort to lower total operating cost by 4% YoY, a lack of revenue growth is hurting net profit. Weak demand means lower unit production and less need by customers to replace consumables. It also triggers more pricing pressure from customers.
We see early signs of recovery in industry semiconductor unit volumes. The depth and length of a recovery are never clear but the current downturn looks extended compared to previous cycles, in our opinion.
We cut our rating from NEUTRAL to REDUCE as we left our target price and earnings estimates unchanged. MMH still possess high margins, high ROE and net cash balance sheet. However, we believe the recent rally has run ahead of the expected recovery in semiconductor demand.