'Cautious' - MMSV (In Highly Cyclical LED Industry) !!!

The company improving fundamentals seem to be the direct result of a major change in strategic direction initiated three years ago (2011).

In 2011, it switched from semiconductors to automation solutions for the LED lighting industry from which it now (Nov 2014) derives about 80% of its revenue. Products offer by the group include LED testers and automated handlers, which are essential components of the lighting industry.

The LED industry will be the key earnings driver for the company in the coming years….

The hike in demand will force major LED makers to expand their production capacity which bodes well for automation solution providers such as MMSV. It is believed that Philips Lumileds Lighting Co and OSRAM Licht AG are MMSV’s clients.

It plans to focus on LED manufacturing process with a view to establishing a market in high power LED production.

It has zero borrowings and is light on assets except for a 55000 ft factory in Penang. Its revenue of rm26.68 million for FY2013 was nearly equal to the group’s total assets of rm26.75 million as at Dec 31 2013.

The company has a diversified customer base with the domestic market accounting for 39% of sales in 2013 followed by the US (35%) and Asia (26%).

For 1HFY2014 revenue jumped 40% to rm16.5 million while net profit almost doubled from rm2.1 million to rm4.0 million. However it is also worth nothing that in the same period, trade receivables almost tripled to rm12.6 million outpacing a 1.5 times increase in trade payables to rm5.4 million.

It is trading at 4 times book and a trailing 12 month PER of 14.3 times.

Its cash balance stood at rm3.57 million as at June 30 2014. It may raise funds to realize its ambitions.

It is liked for its strong CAGR of 32% over FY2013 to FY2016, its net cash position and superior margins of above 24% and high ROE of above 28%.

Despite that, the company is still exposed to the LED industry’s environment which can be both cyclical and dependent on economic growth.