+ Revenue and earnings growths after five quarters of decline. A large part of the recovery was from China (+20% YoY) and Taiwan (+37% YoY). Sales in SE Asia was surprisingly subdued with a modest decline.
+ Interim dividends jumped 25% to 5 cents per share. We were pleasantly surprised by the rise in interim dividends. It is the first increase in two years. Full-year annual dividends of S$15mn (or 11 cents per share) is supported by the estimated operating cash-flows of S$21mn per annum (before capex of S$6mn).
– Temporary closure of Suzhou plant. On 29 January, MMH announced the closure of their Suzhou plant. Suzhou accounts for 30% of group sales. The disruption to entire electronic supply chain in China will create downside risk to future revenues. A mitigating factor is MMH spread of factories across SE Asia as customer orders look shift to other locations.
We are maintaining our FY20e earnings forecast unchanged. This implies a 40% YoY rebound in 2HFY20e earnings. We are modelling revenue growth of 12% in 2H20e, with gross margins improving to 54% (1H20: 53.7%). Industry volumes have started to recover in late 2019. The closure of Suzhou and an overall slowdown in global growth will place some downside risk to our forecast.
Our REDUCE recommendation is maintained and the target price unchanged at S$1.60. MMH still enjoys attractive margins, ROE, net cash balance sheet and a dividend yield of 6%. We believe share price has priced in the earnings recovery for 2H20e.