MIKROMB: A small growth stock

Background

Mikro MSC Berhad (MIKROMB) is involved in the research, development and design of analogue, digital and computer-controlled electronic systems or devices for use in electrical, electronic and other industries and provision of technical support and maintenance services.

MIKROMB operates from a relatively small premise measuring15,000 square feet which houses both its R&D lab and manufacturing plant. The plant can produce about 16,000 units of various electrical distribution products monthly, including:

•   Over-current Relays
•   Earth Fault Relays
•   Earth Leakage Relays & System
•   Metering Solutions
•   Voltage Relays
•   Reverse Power Relay
•   Power Factor Regulator
•   Annunciator
•   Motor Protection Relay
•   Capacitor & Reactor

Its products were used in a few high profile projects (such as airports, hospitals, hotels, ports etc) which is a testament to their high standard. For the whole list of projects that it has participated in, please go here.

Historical Financial Performance

From the chart below, we can see that MIKROMB's top-line and bottom-line have grown steadily over the past ten years. Profit margin was not sacrificed to achieve the top-line growth- a testimonial to the high quality of its products.

 
Chart 1: MIKROMB's last 10 years' P&L

Recent Financial Result

For QE30/6/2016, MIKROMB's net profit rose by 19% q-o-q or 24% y-o-y to RM2.4 million while revenue grew by 11% q-o-q or 8% y-o-y to RM12.5 million. Revenue grew due to increase local demand. This, plus 5%-increase in gross profit margin, pushed up profits for the company.

For FY2016, MIKROMB's net profit rose 25% from RM8.3 million to RM10.3 million while revenue rose 23% from RM39.0 million to RM48.1 million. With the increased profit, the company raised its dividend from 1.2 sen to 2.1 sen per share.


Table: MIKROMB's last 8 quarters' P&L

 
Chart 2: MIKROMB's last 12 quarters' P&L
 
Financial Position

MIKROMB's financial position is deemed satisfactory as at 30/6/2016 with current ratio at 6.8x and gearing ratio at 0.3x.

Valuation

MIKROMB (closed at 0.46 on 6/9/2016) is now trading at a trailing PER of 13x (based on last 4 quarter's EPS of 3.5 sen). Based on last 2 years' earning CAGR of 37%, its PEG ratio is at 0.4x. Thus, MIKROMB is deemed fairly attractive for a small growth stock. [Note: PEG ratio is computed by dividing PER with earning CAGR.]

Technical Outlook

MIKROMB is in a long-term uptrend line with support at RM0.45. However, its upside is capped by an overhead downtrend line at RM0.50. An upside breakout of the downtrend line will lead to the continuation of its prior uptrend. A drop below RM0.45 could lead to an end to its long-term uptrend.


Chart 3: SEG's weekly chart as at Sep 5, 2016 (Source: Chartnexus)


Chart 4: SEG's monthly chart as at Sep 5, 2016 (Source: Chartnexus)

Conclusion

Based on good financial performance, relatively attractive valuation & positive technical outlook, MIKROMB is a good stock for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.