MEMS Technology Bhd ('MEMS') is involved in the manufacture of micro-electromechanical systems ('mems') which are used in a wide variety of fields. MEMS' currents products include pressure sensors & thermopile arrays. The company is now venturing into silicon microphones. The commercial production of this range of products has been long-awaited by the market & today the company announced that it has finally secured 2 contracts for supply of silicon microphones & sensors, which will boost its turnover by the RM140 million a year (go here for more details). The first contract will start soon while the second contract will start in third quarter of this year.
Recent Financial Results
Its recent result has been fairly encouraging. When you compare its 4 latest quarters with the preceding 4 quarters, you will see that its net profit has increased by 14.3% from 13.6 million to RM15.5 million. Turnover for the same period has grown by 18.1% from RM47.3 million to RM55.8 million.
Projected results for FY2007
Assuming that the 2 new contracts contribute RM70 million to MEMS' topline, its topline will increase from RM55.8 million per annum (based on the figure for the 4 latest quarters) to RM125.8 million. Assuming net profit margin is about 27% (i.e. same as the 4 latest quarters' number), MEMS' net profit for FY2007 will be about RM34.0 million. As such, its EPS will be about 5.2 sen.
Valuation
Based on the above EPS of 5.2 sen & its closing price of RM0.655 for this morning session (MArch 16), MEMS is now trading at a PE of 12.6 times. While this may not look cheap, one must see the potential of more business flowing from these first 2 contracts for the silicon microphones. If more contracts can be secured, the financial performance will improve substantially.
In addition, you may note that Legg Mason has acquired a 5.4%-stake in MEMS on Wednesday (March 14) for an undisclosed price (go here for more details). Legg Mason, which is a very reputable fund manager, had also invested in another Mesdaq company, Green Packet 0n July 3, 2006. It bought a block of 12 million Green Packet shares for RM2.625 & that share closed at RM5.05 yesterday.
Technical Outlook
MEMS has recovered very well from its low of RM0.445 recorded in the recent sell-down (see Chart 1 below).
Chart 1: MEMS' daily chart as at Mar 15
MEMS is in a steady uptrend, although this was violated briefly last week due to heavy selling. The overhead resistance is at RM0.70 & RM0.78.
Chart 2: MEMS' weekly chart as at Mar 15
Note: I've called a BUY on MEMS based on technical consideration before (go here and here).
Conclusion
Based on the positive news, MEMS looks like a very good BUY for the medium-term. Good entry level will be about RM0.60, but this may not be likely anytime soon unless the market experiences another sell-off (which cannot be ruled out).
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