Lately, I have been searching for a company which has good profit margins, a business model which is non-conventional (i.e., not manufacturing, banking, plantation, and trading in nature), and resilient to external market shocks. I hope I have found the right company! This week I will be looking at Cypark Resources Berhad (5184). Cypark is a company that is involved with the provision of environmental solutions. It has 4 main business segments which are: 1. Environmental engineering: Provision of nature conservation and environmental improvement services. 2. Landscaping and infrastructure: Provision of landscape services, project management services, and infrastructure development. 3. Maintenance: Provision of specialist maintenance works on leachate treatment plants, landscape services for parks, and maintenance of public amenities. 4. Green technology & renewable energy: Solar panel, biogas, biomass, waste-to-energy, and other renewable energy project
Mikro MSC Berhad (0112) is a company that manufactures and sells analogue, digital and computer controlled electronic devices for the purpose of protecting, monitoring, and programming an electrical system.
Its products are an integral component in any building as it helps monitor and regulate a building’s electrical system. It functions through protecting electrical equipment by isolating and tripping a circuit breaker when an electrical fault is identified and allowing unaffected areas within the electrical network to continue operating. Protective relays are found in any building, from industrial buildings, plants, office buildings to shopping complexes, and hotels; hence, the usefulness of its products.
Picture 1: Mikro’s products
Mikro has been in a net cash position since 2013. Based on its latest financial statements as of September 30, 2017, its cash buffer over its liabilities was at a comfortable level – a net cash position of about RM 10 million in 2017. Return on equity (ROE) for Mikro was also noteworthy at 18% in 2017. From my opinion, a ROE of 18% is considered good; only a handful of companies are able to achieve this. Also, from Table 2 above, it is worth noting that Mikro’s current assets were approximately 8.8 times its current liabilities based on its Q1 2018 financial statements. It can be said that its financial position is solid.
So its financials are great, how has its share price fared?
Its share price has been on a steady uptrend since October 2014. At 16 cents then, its share price has climbed to about 44 cents in October 2017– a 275% gain in 3 years! It is worth noting that its price to earnings (PE) ratio is roughly about 19 times; it is not trading at a bargain.
Refer Chart 4 below on Mikro MSC’s share price.
Chart 4: Mikro MSC’s Share Price
Final thoughts
Mikro MSC seems to be a growth stock from Table 1. Further, its financial results have been stellar – high profit margins, net cash position, and decent return on equity. However, if investors are looking for bargains, this may not be their cup of tea. I would suggest purchasing its stock during price pullbacks to get the best deal.
Currently, the FBMKLCI has been on a bullish rally. Do check out this article on a technical review of the FBMKLCI to get an idea of its potential trend HERE.
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Note: This is not a recommendation to buy or sell this stock. The writer does not own shares in this company. The writer intends to share his view point on this stock’s potential investment value, any decision to invest or sell shares in this company is entirely at the reader’s own risk.
Its products are an integral component in any building as it helps monitor and regulate a building’s electrical system. It functions through protecting electrical equipment by isolating and tripping a circuit breaker when an electrical fault is identified and allowing unaffected areas within the electrical network to continue operating. Protective relays are found in any building, from industrial buildings, plants, office buildings to shopping complexes, and hotels; hence, the usefulness of its products.
Picture 1: Mikro’s products
Don’t worry if you do not have an engineering background; I am not an engineer myself. The beauty of investing is that one does not need to be an expert in that field. But a good understanding of what a company does, identifying potential growth opportunities in a company, and an understanding of financial statements will be sufficient.
Sales of Mikro’s products in Malaysia constitutes about 56% (Malaysia: RM 28.4 million) of its total revenue. Another significant market for Mikro is Vietnam, which contributed 25% (Vietnam: RM 12.5 million) of total revenue. It should be noted that growth from the Vietnamese market has been growing by leaps and bounds.
Chart 1: 2017 Revenue split by geographical location
Chart 2: Mikro MSC’s revenue growth based on geographical location
For the past 5 years, revenue has been steadily increasing. Overall, revenue has been growing at a compounded annual growth rate (CAGR) of 12% from 2013 to 2017. Its biggest growth market is its Vietnamese market as it recorded a CAGR of 40% during this period.
Protective Relay market
I noticed a relationship between developing countries and the need for protective relays. Developing countries which have a lot of infrastructure growth will inevitably require protection for their buildings. Thus, a demand for protective relays. Incidentally, this is evident in Mikro’s growth in revenue from Vietnam, India and Iran – refer Chart 2 above. Below is a chart on the growth forecast on the Asia Pacific protective relay market by Grand View Research.
Chart 3: Asia Pacific Protective Relay Market Forecast
This industry is not without its competitors as well, I noted that multi-national corporations such as Siemens, Schneider, and Mitsubishi Electric also manufacture protection relays. Based on Mikro’s strategy in its annual reports, it prices its products more competitively against its competitors to gain market share. Not a bad strategy considering products produced by MNCs are more expansive.
Table 1: Key Financial Information
The financial results of Mikro have been outstanding. Profit after tax margins have been consistently improving, from 17% in 2013 to 22% in 2017. Additionally, the CAGR in revenue, PBT, and PAT from 2013 – 2017 were 12%, 18% and 19% respectively. Based on the growth that Mikro has been experiencing, it can be said that it is a growth counter. The effect of dilution to Mikro’s profits is minimal based on the writer’s opinion as the potential dilution of shares from its employee share option scheme (ESOS) is 1.6 million shares. Table 2: Financial Position of Mikro MSC
Sales of Mikro’s products in Malaysia constitutes about 56% (Malaysia: RM 28.4 million) of its total revenue. Another significant market for Mikro is Vietnam, which contributed 25% (Vietnam: RM 12.5 million) of total revenue. It should be noted that growth from the Vietnamese market has been growing by leaps and bounds.
Chart 1: 2017 Revenue split by geographical location
Chart 2: Mikro MSC’s revenue growth based on geographical location
For the past 5 years, revenue has been steadily increasing. Overall, revenue has been growing at a compounded annual growth rate (CAGR) of 12% from 2013 to 2017. Its biggest growth market is its Vietnamese market as it recorded a CAGR of 40% during this period.
Protective Relay market
I noticed a relationship between developing countries and the need for protective relays. Developing countries which have a lot of infrastructure growth will inevitably require protection for their buildings. Thus, a demand for protective relays. Incidentally, this is evident in Mikro’s growth in revenue from Vietnam, India and Iran – refer Chart 2 above. Below is a chart on the growth forecast on the Asia Pacific protective relay market by Grand View Research.
Chart 3: Asia Pacific Protective Relay Market Forecast
This industry is not without its competitors as well, I noted that multi-national corporations such as Siemens, Schneider, and Mitsubishi Electric also manufacture protection relays. Based on Mikro’s strategy in its annual reports, it prices its products more competitively against its competitors to gain market share. Not a bad strategy considering products produced by MNCs are more expansive.
Table 1: Key Financial Information
The financial results of Mikro have been outstanding. Profit after tax margins have been consistently improving, from 17% in 2013 to 22% in 2017. Additionally, the CAGR in revenue, PBT, and PAT from 2013 – 2017 were 12%, 18% and 19% respectively. Based on the growth that Mikro has been experiencing, it can be said that it is a growth counter. The effect of dilution to Mikro’s profits is minimal based on the writer’s opinion as the potential dilution of shares from its employee share option scheme (ESOS) is 1.6 million shares. Table 2: Financial Position of Mikro MSC
So its financials are great, how has its share price fared?
Its share price has been on a steady uptrend since October 2014. At 16 cents then, its share price has climbed to about 44 cents in October 2017– a 275% gain in 3 years! It is worth noting that its price to earnings (PE) ratio is roughly about 19 times; it is not trading at a bargain.
Refer Chart 4 below on Mikro MSC’s share price.
Chart 4: Mikro MSC’s Share Price
Final thoughts
Mikro MSC seems to be a growth stock from Table 1. Further, its financial results have been stellar – high profit margins, net cash position, and decent return on equity. However, if investors are looking for bargains, this may not be their cup of tea. I would suggest purchasing its stock during price pullbacks to get the best deal.
Currently, the FBMKLCI has been on a bullish rally. Do check out this article on a technical review of the FBMKLCI to get an idea of its potential trend HERE.
If you like my posts and this blog please SUBSCRIBE in the link above or follow me on Google+ !!! THANKS
Note: This is not a recommendation to buy or sell this stock. The writer does not own shares in this company. The writer intends to share his view point on this stock’s potential investment value, any decision to invest or sell shares in this company is entirely at the reader’s own risk.
The above write up on Mikromb reflects an independent and more importantly indicates a professional approach in its depths and substances, inspite of the modest statement by by the author; that he is not an engineer! I am familiar in the specifications and functions of the products for buildings as an architect in practice . There are a number of competitors presently in the Malaysian market for the needs to be used as rightly stated by the above author . Unfortunately, he had not make himself be known. I wish he had in order to get to know him better. and more importantly, as a synergistic parallel of thoughts. Thank you. All the best.
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