Business overview
Mikromb is a small cap ACE listed company involve in designs,
manufactures and sells Intelligent Electronic Devices (IEDs) which act
to monitor and provide protection in electrical power systems. Its major
products are protective relays, which prevent the electrical system
from being damaged in the case of a sudden surge of current or a damaged
cable. Their products are widely used locally including public
infrastucture buildings, universities, shopping malls, as well
internationally such as Bahrain F1 circuit, Singapore MRT and many more.
Mikromb close competitor are Mun Hean and Delab, both are also local
player in this industry. Therefore, competition does arrise in terms of
product quality and pricing. Yet Mikromb had managed to get over 50%
market share, indicating its strong and leading position in the
industry.
Outlook
Mikromb planned to move their operation to new place, where they expect
to ramp up production up to 5 times of their current capacity.
Therefore, the company expansion mode in terms of production capacity
and addition of more new products are expected to bring more fruits in
near future. Meantime, Mikromb also looking to grow its overseas market
due to slowing of demand from local market.
Valuation
Mikromb is in growing phase of its life cylce. Therefore, I will
assuming it to grow its revenue at 15% per year in supergrowth period
and subsequently reduced to 5% as reaching to year 10. After that, the
company will grow its revenue at 3% over its lifetime.
Reinvestment rate = expected growth / ROC
Currently company has ROC of 20%, this translate to RR of 75% in
supergrowth period and 12% RR in stable period, assuming its ROC will
improve to 25%. I believe the company will get more profitable as it
reach matured stable growth stage. For discount rate, I will go for 10%
composed of 3.5% risk free rate and 6.5% risk premium.
My DCF is then computed as below :
From above calculation, I estimate Mikromb should worth around RM0.95
per share. Given current price of RM0.72/share, Mikromb is undervalued
around 24%. Using reverse DCF, at current price, market expect the
company to grow at 9%.
Bonus Issue
Recently, board director announced that they plan to issue bonus shares
subject to shaeholder approval on next month's EGM. The bonus shares
will be on basis of 2 shares on every 5 existing shares.
I would like to buy Mikromb for its i) Reliable management ii) Strong financial, and iii) Foreseeable prospects.
Thank you and happy investing.
Jeff.
http://klse.i3investor.com/blogs/valuedividend/125735.jsp
