MIKROMB - BOMB KABOOM

Mikro MSC Berhad aka MIKROMB is a company at the forefront of the electrical distribution industry[1]. MIKROMB is engaged 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 and maintenance services[2]. There are 3 subsidiaries under MIKROMB. Mikro Sdn Bhd (100%) engaged in sales of the analogue, digital and computer-controlled electronic devices, Formula Concept Sdn Bhd (100%) engaged in manufacturing of the electronic devices and Mikrocap Sdn Bhd (51%) which is involved in trading of capacitors. Wondering what are the these electronics? Well, hope the pictures give you some ideas. For more details, you can click on the link.

MIKROMB Products
From: http://www.itmikro.com/app/webroot/UploadedContent/files/mikro-cat-2015.pdf

MIKROMB developes and manufactures equipment with performs reliably, costs less, reduces project costs and ultimately saves lives. Why MIKROMB keeps growing? There are basically 2 reasons. First, they make quality electrical distribution equipment that is proven to work in even the toughest conditions. Second, they keep their prices as competitive as they can [2]. Wow, such convincing words from the management. Offering 2 years of warranty for their products and adhering to  quality ISO certificates, MIKROMB's equipments can be installed in every type of buildings, from medium to large buildings. Some notable local and overseas projects such as, One Borneo Shopping Complex (KK), Sunway Pyramid2, (KL), LCCT, KLIA2, KLCC, MRT Stations (Singapore), Malaysia Embassy (Cambodia), Resort World Sentosa (Singapore) etc[2]. Their products are exported across three continents, covering China, India, Vietnam, Singapore, Hong Kong, Pakistan, Indonesia, Thailand, etc etc.

Looking through the background seems convincing, now lets look at the fundamental and the technical analysis.

1) Fundamental Analysis:

Revenue and Net Profit for MIKROMB

The revenue and net profit are having growth from 2011 to 2015. The average net profit margin for the past 5 years is 17.82%. That is an impressive result for a company with market cap of around RM100mil. The best part i like is its revenue and net profit is increasing every year, just like reaching higher and higher. Not to forget that they give dividend every year, with the Dividend Yield of 2.53%.

Net Cash of MIKROMB

The company's net cash is also very steady, meaning to say the business is running very good as of now. In the Financial Daily news dated 14 October, the managing director and major shareholder Yim Yuen Wah mentioned that MIKROMB's revenue from domestic sales is 72%, while the remaining 28% is from the exports, earning USD[5]. The 2015 net profit increases 47.89% if compared to previous year due to increase in oversea sales [3]. The strong point that MIKROMB had is their business model. They develop and manufacture the products themselves, unlike assemblers who assemble products for others, therefore, their margin is higher.

Yim warned that the outlook for MIKROMB will be challenging for 2017 and 2018 due to lagging effect from a slowdown in the domestic construction sector, but they curb the problem by expanding to Thailand and Indonesia. They had no plans to venture into US and Europe due to the high costs to get international accreditation[5]. In the Chairman Statement in Annual Report 2014, due to the burgeoning growth of M2M (machine-to-machine) connectivity and the Internet-of-Things, the management had embarked on a major product development programme to develop an eco-system of network-enabled intelligent devices and solutions[2]. In my opinion, if this thing was carried out in a few years time, it will be a big hit, considering the potential of big data and IoT in the world.

Lately, MIKROMB proposed to acquire a freehold industrial land, composed of a single-storey warehouse, with an annexed three storey office block, a guard house and a refuse chamber[4]. The management will be using the new land for their office and warehouse / factory. The market value for the property is RM11.75 million. According to the management, this is considered as a long term investment and it is aligned with the management's long term plan to increase its production capacity and storage purposes, estimated to save around RM100k of rental fee per year. MIKROMB will move to their new office in Q2 of 2017. I think that this purchase is a good buy, at the gloomy property downtime, focusing at company's expansion, looking at the saving of rental cost, it is definitely an excellent buy, eventhough the cash reserves will reduce.

2) Technical Analysis:

MIKROMB Weekly Chart

This is MIKROMB's weekly chart. Normally weekly chart can forecast better than daily because of its pattern that will last longer. In the end of August, the chart had been in an uptrend, with a few bullish hammers hammer through the supports of 0.32, 0.345 and 0.36. As of now there is no reversal signal yet, and it had been hovering around 0.37 to 0.38. Lately, there is a huge volume at the last week of September. I will assume that those people are still holding and had not sell off their shares yet, waiting for Quarter Result to be announced and head away with handsome profits.

Notice the blue lines connecting the upper parts and the lower parts of the candlesticks, when connected, it will for a triangle. I like to call it "Golden Triangle", normally there will be an outbreak at the tip of the triangle. As far as my case studies, mostly breakout to a higher value, that's why i call it golden triangle. With its next resistances at 0.39 and 0.42, considering the bought price is at 0.38, the risk to reward ratio is quite ideal. Cut loss at 0.36 and take profit at 0.42, the RRR is 1:2. It is quite a good ratio in this uncertain market condition.

Summary: 

After the budget's announcement on 23 October, seems like there is no surprise and it is reflected in the market today. We must need to be more careful in stock selection, better to focus at companies that will have good quarter results than previous quarters.
Therefore, i bring to you MIKROMB:

- Excellent business model with few competitors in Malaysia whereby they develop and manufacture the products themselves (relays, regulators, etc)
- High profile with involvement with few mega projects (KLCC, KLIA) locally and internationally.
- 5 continuous years of net profit margin > 10%, with revenue and net profit growing from 2011 to 2015.
- USD benefit as 28% of the product are exported, expanding to Indonesia and Thailand.
- Embarked on a major product development programme to develop an eco-system of network-enabled intelligent devices and solutions
- Challenging year ahead due to slowdown of construction sectors, hence lowering down the demand.
- Propose to acquire property for long term investment to increase production capacity and storage purposes for RM11.75 million, expected to move in at Q2 of 2017.
- Weekly chart shows bullish hammers and golden triangle.
- Ideal RRR of 1:2
- Respect the cut loss point very very much.

MIKROMB... bomb... KABOOM??? Your call...

Let's Ride the Wind and Gainvest

Gainvestor 10sai

26 October 2015

7.00pm

Sources:

[1]: http://www.itmikro.com/
[2]: Annual Report 2014
[3]: Q4 2015 Report

[4]: Proposed Acquisition: http://www.bursamalaysia.com/market/listed-companies/company-announcements/4898141

[5]: The Edge Financial Daily: 14 October 2015