From M to M-M

Last month, I divested Metro Holdings after holding it for 12 years. With the CPF refunded, I was looking to redeploy the fund. I do not want to invest in REIT as they already occupied 30% of my overall portfolio. I also do not want to invest in a dividend counter that I already held in my cash portfolio. Nothing wrong with that but just my personal preference. I could have buy more of VICOM and OCBC (which I might still do) but I would not deploy all the fund on them. So I was looking for a new dividend counter that I can hold for many years.

In the end, I decided to buy Micro-Mechanics. A company I am familiar with since I once held it before. The subjective me was hesitating to initiate a position at $1.85 as its price has suddenly spiked up recently from $1.6+ in early October. Also, having sold the counter at $1.41 two years ago, it does not feel good to buy back at a higher price.  The objective me argued that I should not to look at past prices and decision should be made based on current valuation and future outlook.

Micro-mechanics has seen a decrease in both its revenue (-7.3%) and net profit (-24.5%) in the last financial year due to a steep cyclical downturn in the global semiconductor industry and heightened global economic and geopolitical uncertainties. Despite the lower earning, it decided to continue to maintain its 10 cents dividend. It does mean it is paying out more than its earning with a payout ratio of 110%. The higher payout ratio is not a concern though as its dividend is still lower than its free cashflow per share of about 11 cents and it has about 15.7 cents per share in cash with no debt.

Based on the numbers, it does seem that buying at $1.85 is not too expensive as the yield would be around 5.4%. I decided to wait for its announcement of its 2020 Q1 results before taking any action. I was hoping for a weaker Q1 results will soften its price. Indeed, it reported a revenue drop of 9% and net profit drop of 27%. However, its share price hardly moved on that day. This is probably due to the 6 cents dividend that will go XD next Tuesday (6 Nov) and a glimmer of hope that the down cycle is coming to an end as 2020Q1 numbers are better than 2019Q4.

With this latest set of results, I finally bought the counter twice last week at an average price of $1.84. The price would probably drop after XD and I am likely to add my third (and maybe fourth) tranche in the coming months.