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Micro-Mech Automation Bearing Fruit

Reading Micro-Mech quarterly report have always been a pleasure because not many manufacturers put so much focus on providing that level of information to their shareholders or potential investors.

Quarterly Report here.

Micro-Mech have been having difficulties these  past 2 years due to a slow down in the semi-conductor business.

But what I like about them are their focus on what is important and prioritizing long term cost sustainability.

Particularly, they are focus on replacing man power with automation. This is an area where I think Singapore can develop to be as a manufacturing hub to improve productivity and make use of better train citizens.

We weren’t sure how well the automation is working out but it seems to be bearing fruit.

  • Cost of sales was down 4.4% versus revenue down of 1.5%
  • Administrative expenses down 2.9%

Manpower getting expensive

Against this backdrop of slow industry growth, shifting market dynamics and global uncertainties, the Group is also facing cost challenges. Several countries in Asia where we operate have introduced sudden and drastic changes to their minimum wage laws, which has set off a chain reaction of wage hikes. Together with a shortage of skilled workers, further exacerbated by a host of companies relocating to Asia from higher-cost geographies, the operating environment for the Group is likely to remain challenging

Beginning at our CMA factory in the USA two years ago, we started an R&D project to develop 24/7 Machining – a highly automated or round-the-clock approach for machining a high mix of complex parts. Although it has been a challenging and costly R&D effort (just the capital outlay for the pilot was more than S$4 million), we are beginning to see promising results.

After our first 24/7 Machining line was fully equipped in 2Q13, production hours on the line more than doubled to nearly 2,000 hours in 3Q13. On several days during the quarter, we managed to achieve 20 hours of machine utilization. With part-to-part change-over times reduced by over 90% and more production at our CMA factory shifting to this pilot line, we retired and sold several legacy machines to book a gain of S$370k. Together with an improved GP margin and a constant focus on operational improvement, our CMA division recorded a profitable quarter in 3Q13.

Although we still have a great deal to do and learn before 24/7 Machining is fully developed, we are already seeing a return on our R&D by introducing several of the developments that came out of 24/7 Machining to our factories in Asia. As a result of these and other efforts to improve productivity, we have been able to gradually
streamline the Group’s headcount to 471 at the end of 3Q13. from 519 people a year ago. We intend to continue this focus, especially in areas that reduce set-up time, improve quality and enhance factory utilization rates.

The staff reduction was impressive. Almost 9.5% of the staff strength. If they get a better hang of this, could they reach a state where they become cost effective such that even though business is not doing so well (like now), they can still be rather sustainable?

Annualized, the EPS is 4 cents currently.

Micro-Mech pays a dividend of 3 cents for a 6.5% yield.

I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. Do follow my Dividend Stock Tracker which is updated nightly  here.

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