Micro-Mechanics (Holdings)(SGX: 5DD) has reported a significant surge in net profit for the second quarter of 2025. While this is undoubtedly positive news, a closer examination is necessary to determine the sustainability of this performance.
The outlandish surge in net profit for this quarter can be attributed to the low base from the previous year and is unlikely to be repeated in the remaining quarters.
That said, two consecutive quarters of year-on-year growth in both top and bottom lines suggest that Micro-Mechanics may have finally emerged from the bottom of this cycle.
A key driver of this robust performance is the turnaround of MMUS, the company’s US subsidiary. The strategic restructuring of its operations is yielding positive results. Not only has MMUS achieved two consecutive profitable quarters, but its profit before tax this quarter has surged by 47% compared to the previous quarter.
Encouragingly, this growth is evident across both business segments and all geographical markets, suggesting a sustainable recovery throughout the remainder of the year. If this trajectory continues, Micro-Mechanics’ annualised earnings per share of S$0.087 will surpass the levels of the previous two fiscal years.
Moreover, the company consistently generates significant free cash flow, typically exceeding its net profit. For instance, for 1H 2025, free cash flow reached S$9.6 million, approximately 40% higher than net profit.
This strong cash generation position increases the likelihood of a higher final dividend or even a special dividend declaration for this fiscal year. At the current trading price of S$1.66, this could translate to an attractive dividend yield of around 5%.
I am pleased with the progress made by Micro-Mechanics and will hold on to my current stake.
Disclaimer: This analysis represents my personal projections and actual results may differ significantly. This information should not be considered investment advice. Prospective investors are strongly encouraged to conduct thorough due diligence before making any investment decisions.
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