7 Things You Need to Know about Mi Equipment Holdings Bhd before you invest

Mi Equipment Holdings Bhd (Mi Equipment) made its debut on Bursa Malaysia on 20 June 2018.

At the time of writing, its share price is RM2.09, around 47% higher than its IPO Price of RM 1.42.

Check out 7 things you need to know about Mi Equipment below:

#1: History

Mi Equipment has its roots traced back to 2007. In that year, Oh Kuang Eng has founded DPE Integration (M) Sdn Bhd (DPE) with his former colleague, Sim Ah Yoong. DPE was into manufacturing of several types of assembly and packaging equipment. It has secured Inari Technology in 2009 as its first ever local client and subsequently, Avago Technologies as its first foreign client in 2010.

In 2012, Oh Kuang Eng and his team at DPE had recognized the potential of Wafer Level Chip Scale Packaging (WLCSP) equipments and thus, set up Mi Technology Pte Ltd, now known as Mi International in Singapore. Shortly, it established Mi Equipment Suzhou in 2013, purchased Mi Equipment Taiwan in 2014, and incorporated Mi Equipment USA in 2015.

Today, Mi Equipment owns:

1. 100% shareholdings of Mi Equipment (M) Sdn Bhd
2. 100% shareholdings of Mi International Pte Ltd
3. 100% shareholdings of Mi Precision Sdn Bhd

From which, Mi International owns: 

1. 100% shareholdings of Mi Equipment Suzhou
2. 100% shareholdings of Mi Equipment Taiwan
3. 100% shareholdings of Mi Equipment USA
4. 100% shareholdings of Mi Equipment Sales & Services Sdn Bhd

#2: Production Capacity & Utilization Rate

Mi Equipment manufactures WLCSP sorting machines in a tenanted factory in Bayan Lepas, Penang.

Production Capacity

In 2015, Mi Equipment had about 10,000 sq. ft. of production floor space and was able to produce 90 WLCSP sorting machines per year. The management had expanded its production floor space to 17,000 sq. ft. in 2016, and thus, Mi Equipment is now capable of producing up to 102 machines per annum.

Utilization Rate

In 2015, Mi Equipment hired more engineers & technicians and extended its production hours as it received higher orders from its customers. In 2016, Mi Equipment had received slower orders and thus, causing a drop in utilization rate. In 2017, sales have picked up and hence, resulted in improved utilization rate throughout the year. 

Source: IPO Document of Mi Equipment

#3: The Financials

As a result, Mi Equipment has projected unpredictable patterns in both sales and profits over the last 3 years. It had recorded a substantial drop in revenue from RM 105.1 million in 2015 to RM 57.1 million in 2016.

Then, its sales have improved substantially to RM 173.3 million in 2017. Profits dropped from RM 40.9 million in 2015 to RM 16.1 million in 2016 before reaching as high as RM 59.3 million in 2017.

Figures in RM ‘000

Source: IPO Document of Mi Equipment

Note:

Earnings Per Share (EPS) is calculated based on its number of shares issued after its IPO listing which is 500 million shares.

#4: The Purpose of IPO

Mi Equipment intends to raise RM 190.89 million (before deducting RM 8.1 mil for IPO expenses) where the management plans to utilize it for:

#1: Construction of New Factory in Bayan Lepas, Penang: RM 65 million

Mi Equipment acquired a piece of property in Bayan Lepas where it intends to construct a new factory that houses a production floor space of 90,000 sq. ft. and has a production capacity of 540 machines per annum.

In addition, it will also house its new business division namely, Mi Precision which is into manufacturing precision fabricated parts to complement its businesses. The expected completion of this new factory is scheduled to be in Q1 2019.

#2: Construction of New Factory in Batu Kawan, Penang: RM 75 million

Mi Equipment intends to raise RM 75 million to construct another factory in Batu Kawan, Penang. It would have a production floor space of 140,000 sq. ft. and has a production capacity of 540 machines per annum.

Despite the same quantum, the machines to be produced in Batu Kawan would be bigger than the ones produced in Bayan Lepas. It plans to commence the construction of this factory in Q3 2019 with an estimated completion by Q3 2020.

#3: Research & Development (R&D): RM 6.0 million

Mi Equipment intends to buy prototype machines in relation to its efforts in developing new series of its machines.

#4: Working Capital: RM 36.8 million

Mi Equipment plans to spend RM 30 million on acquiring raw materials and RM 6.8 million in expanding its workforce.

#5: Key Risks

Mi Equipment’s financial results are dependent on 5 major customers which are mainly Outsourced Semiconductor Assembly & Test (OSAT) companies and Integrated Device Manufacturers (IDM).

In 2017, these 5 customers had accounted for RM 119.4 million in sales, 68.9% of its revenues in the financial year. Any changes in sales orders derived from them would impact its results in the future. These customers include:

Source: IPO Document of Mi Equipment

#6: Valuation

Mi Equipment’s shares were offered at RM 1.42. Thus,

1. In 2017, its earnings per share (EPS) is 11.9 sen. Thus, the shares were offered at P/E Ratio of 11.97.
2. It has a dividend policy of paying out a minimum of 20% of earnings per year to its shareholders. If it is able to maintain EPS at 11.9 sen, then it would pay out, at least 2.37 sen a share in dividends per share (DPS).
   As such, Mi Equipment’s expected gross dividend yield is 1.67%.

#7: Major Shareholders

Upon listing, Oh Kuang Eng remains as Mi Equipment’s largest shareholder of Mi Equipment with 68% direct shareholdings.

He is appointed as its CEO and Executive Director and is responsible in making corporate decisions and in heading its Development & Application Engineering Division. Meanwhile, the other directors are not substantial shareholders of the company.

Conclusion:

Evidently, Mi Equipment had laid out its ambitious plan to substantially add its production capacity from 102 machines to 1,080 machines by 2020, which is a multiple of 10 times in a short span of 3 years.

Despite its growth plans, it is clear that the investment into Mi Equipment is not for everyone, especially if you are a dividend investor. This is because the dividend payout ratio and its expected yields are relatively low. 

Meanwhile, if you are a growth investor, I believe a further due diligence is necessary as Mi Equipment is involved in a relatively cyclical industry and derives sales from a few key customers. A slowdown in the global semiconductor industry may hurt its financial results which may negatively impact its stock price in the future. 

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