Insider Asia’s Stock Of The Day: Mikro MSC

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This article first appeared in The Edge Financial Daily, on September 23, 2015.



Mikro MSC Bhd

We first featured Mikro (Fundamental: 3/3, Valuation: 2.1/3) on November 5, 2014 when its shares were priced at 25 sen. It has since risen 32% to 33 sen, despite weakness in the broader market.

Mikro is a small, relatively unknown company listed on the ACE market with market capitalisation of just RM91 million. Furthermore, few would categorise its business as “exciting”.

It develops and manufactures electrical distribution products such as overcurrent and earth fault relays, metering solutions and power factor regulators. These are small but key components of a building’s integrated electrical system. They monitor and prevent damage to electrical equipment by isolating and tripping a circuit breaker when electrical fault is detected.

Nevertheless, Mikro has delivered steady earnings growth. Revenue grew from RM20.2 million to RM30.4 million from FYJune2010 to FY2014 while net profit expanded from RM3.7 million to RM5.6 million. In the latest FY2015, revenue was up 28.3% to RM39 million while net profit increased 47.9% to RM8.3 million.

Notably, it has maintained high double-digit net margins, ranging from 14%-21% in the past six years. Domestic sales accounted for some 72% of sales, with the balance from export, including to Vietnam, Iran, and India.

The company has a debt-free balance sheet, save for marginal bank overdrafts in FY2013. As at end-June, the company had net cash of RM8.4 million — about 9% of its market capitalisation.

Recently, Mikro proposed to acquire a 4,047m² freehold industrial land in Klang, together with attached buildings, for RM11.7 million. The company intends to consolidate its entire operations under one roof.

To recap, its products are used in numerous high-profile developments, including the KLIA 2 and Tropicana Medical Centre as well as the MRT stations in Singapore and Doha International Airport in Qatar.

The stock trades at a trailing 12-month P/E of 11 times compared to growth of 47.9%. Dividends totaled 1.2 sen in FY2014, giving a net yield of 3.7%.