Mikro jumps 10% after Edge Research says PE valuation seen declining

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KUALA LUMPUR (Nov 5): Electrical distribution product manufacturer Mikro MSC Bhd rose as much as 10% after Edge Research said the stock's premium price-earnings (PE) valuation was expected to decline.

This is anticipation of Mikro's earnings growth prospects, according to Edge Research's report which is published in The Edge Financial Daily today.

At 2.25pm  Mikro gained three sen or 7.4% to 43.5 sen with 2.9 million shares changed hands. The stock had earlier risen as much as four sen to 44.5 sen.

For comparison, the FBM KLCI fell 6.39 points or 0.4% to 1,845.08.

Edge Research said : "It comes as no surprise that Mikro trades at a slight premium valuation, at 2.4 times book with a trailing 12-month P/E of 13.5 times. Positively, these premium valuations should decline over time, as the company’s earnings are growing fast, as reflected by its P/E-to-growth ratio of just 0.7 times."

Bloomberg data showed that the KLCI traded at a PE ratio of 16 times.

According to Edge Research, Mikro is a "relatively unknown" small cap niche company that has consistently reported high profit margins, and net cash on its balance sheet.

Mikro's net profit margins ranged from 14% to 18% from financial years ended June 30, 2011 to 2013.

Among peers, Edge Research said Mikro’s 19% return on equity was one of the highest in the sector