System 1 Thinking* (fast thinking) after reading the above headlines from The Business Times is “siao liao lor” (Singlish for “oh no, we are in trouble”)
Take a deep breathe and engage System 2 Thinking* (slow thinking). Let’s take a look at the reports and see what is happening.
It is definitely not a good quarter for Micro-Mechanics as both revenue and net profit dropped. Diving in, it can be seen that there are weaknesses all round, but the 40% drop in its largest market China has the largest impact.
Beyond the P&L statement, its balance sheet remains strong and cash flow is at a similar level as last year. In fact for half year, it is even higher.
This probably explains why the management is able to declare a similar interim dividend of 6 cents. The silver lining is the opening up of China since January. Hopefully, the throughput will improve from February onwards and the company can have a better performance in the second half.
MPACT’s same DPU is a disappointment when its revenue and net property income are boosted by the merger with Mapletree North Asia Trust last year. The management reason is finance cost but it’s obviously not the only factor. Its performance is definitely dragged down by its Greater China properties from the merger! If not for the new fees structure where by performance fees is 25% of yoy growth in DPU, I would feel angry again at last year’s merger.
Nonetheless, this is not totally unexpected. Hopefully with the China re-opening, the management can deliver what it wanted to do with the merger and benefit the shareholders in a few quarters time.
After digesting the information, I decided to continue to hold on to my current stake.
*System 1 and 2 Thinking comes from Nobel Laurette Daniel Kahneman’s book “Thinking, Fast and Slow”. You can watch a short interview of him talking about System 1 and System 2 thinking in the following video.