4 promising electronic companies for your watchlist

There have been rapid advancements in the field of artificial intelligence (AI) and the Internet of Things (IoT) over the last few years.

This boom has, in part, been driven by investments in semiconductor and electronic component technology.

With the explosion in mobile phones, increased demand for faster internet speeds has also spurred telecommunication companies to invest in upgrading to 5G networks.

Companies operating in the electronics industry have enjoyed improved business prospects and consistent growth due to these trends.

Here are four promising companies that you can add to your watchlist.

1. Micro-Mechanics (Holdings) Ltd 

Micro-Mechanics designs, manufactures and markets high-precision tools and parts for the semiconductor industry.

The group owns five manufacturing facilities located in Singapore, Malaysia, China, the Philippines and the USA.

In its third-quarter fiscal year 2020 earnings report, the group saw a 12.9 per cent year on year increase in revenue, while profit after tax jumped by 48.1 per cent year on year to $3.9 million.

Its balance sheet is debt-free with cash of $16.1 million.

Free cash flow generated for the nine months ended March 31, 2020 amounted to nearly $10 million.

Management believes that despite the pandemic, the semiconductor industry is poised for solid, multi-year growth.

The group has also opted to voluntarily provide quarterly updates to investors.

ALSO READ: 15 companies that will benefit from the Covid-19 Resilience Budget

2. AEM Holdings Ltd 

AEM offers application-specific intelligent system test and handling solutions for both semiconductor and electronics companies.

These clients are in the advanced computing, 5G and AI markets.

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For the group's first-quarter results, revenue almost tripled from $52.7 million to $146.8 million, while net profit grew more than five-fold from $6.6 million to $36.1 million.

This superb performance was driven by increased orders from AEM's main customers for tools, consumables and services.

As operating costs remained stable on a year on year basis, the increase in revenue flowed directly down to net profit.

AEM reported an increase in demand for semiconductor chips used in servers, PCs and notebooks due to the shift to telecommuting and virtual learning.

The group continues to see strong orders for their products and services that will carry it through for the rest of 2020 and beyond.

3. UMS Holdings Limited

UMS provides equipment manufacturing and engineering services to original equipment manufacturers (OEMs) of semiconductors.

The group also supports the electronic, machine tools and oil and gas industries, and has production facilities in Singapore, Malaysia and the USA.

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For the first quarter of the current fiscal year, UMS reported a 22 per cent year on year jump in revenue.

Net profit soared 60 per cent year on year to hit $10.8 million.

The group is in a net cash position with cash of $38.8 million and total debt of $10.8 million as of March 31, 2020.

Free cash flow remained strong at $8.3 million for the quarter, and UMS doubled its quarterly dividend to $0.01 from $0.005 a year ago.

Andy Luong, CEO of UMS, commented that there may be near-term challenges for the business due to supply chain disruptions and manpower constraints.

However, the long-term outlook remains sanguine for the business due to the increased demand for data and the acceleration of technology-driven developments such as Smart Cities.

4. Valuetronics Holdings Limited 

Valuetronics is an electronic manufacturing service (EMS) provider that focuses on the design and development of products.

The group's EMS business is divided into consumer electronics and industrial and commercial electronics products.

For the half-year ended September 30, 2019, Valuetronics reported a slight 3.7 per cent year on year decline in revenue.

Net profit attributable to shareholders, however, rose 10.8 per cent year on year to HK$104.1 million (S$19 million).

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An interim dividend of HK$0.06 was declared, 20 per cent higher than the HK$0.05 declared last year.

The group had a clean balance sheet with HK$1 billion in cash and no debt.

Valuetronics had to temporarily shut down production in China due to the coronavirus outbreak but resumed operations on the week starting February 17.

However, due to the drop in production capacity in February and early March, revenue and net profit will be negatively impacted for the second half of the fiscal year 2020.

The group has mitigated this by shifting some production over to their Vietnam factory.

In November last year, a sub-lease agreement was signed to acquire land to develop its campus. The first phase is expected to be completed by the first half of the calendar year 2021.

This article was first published in The Smart Investor. Disclaimer: Royston Yang does not own shares in any of the companies mentioned.