• 2Q21 revenue and net profit in line, at 25%/23% of our forecasts. Revenue rose 13% YoY to a record S$18.7mn. PATMI jumped 34% YoY to S$4.8mn. Interim dividend raised by 20%.
• Driving growth has been an upswing in back-end semiconductor orders and contributions from new front-end parts.
• Outlook remains positive. Barriers to entry continue to rise as semiconductor wafer geometries shrink to below 10 nanometers. Customers are requiring MMH to prepare for a ramp on the back of an onslaught of new electronics applications.
• Our FY21e earnings are unchanged. Recent rally has lifted comparable back-end equipment makers’ valuations to 21x PE. We raise our TP to S$3.35 from S$2.93 as we increase FY21e ex-cash PE from 18x to 21x, in line with peers. As positives have been priced in, downgrade from ACCUMULATE to NEUTRAL.

The Positives

+ Revenue at another high. Revenue rose 15% YoY to record S$18.7mn. Sales in China were up 28%, followed by +18% in the U.S. China’s growth reflected the industry’s pick-up in semiconductor demand while U.S. sales captured contributions from a new front-end programme that involves semiconductor parts for gas handling in a vacuum chamber. We believe these are likely vapour or chemical disposition machines.

+ Interim dividends up 20% YoY. MMH raised interim DPS by 20% to 6 cents. This was its  second consecutive year of increase. Over two years, interim DPS has been raised 50%.

The Negative

Nil.

Outlook

High barriers to entry and the ongoing surge in semiconductor demand should provide runway of growth for the next two years. Management believes the industry is entering a multi-year supercycle of growth from skyrocketing demand for data centres, video streaming, remote work, 5G and automobile electrification. High barriers to entry persist for MMH’s core rubber tip product. For instance, only a handful of suppliers can supply such high precision, customised and proprietary materials to customers.

Downgrade to NEUTRAL, albeit with higher TP of S$3.35 (from S$2.93)

Recent share-price rally has priced in its positive outlook and long-term merits such as 4% yields, 35% ROEs and a net-cash balance sheet.