EPS of $0.01 increased by 11.3% from previous year
Gross margin of 32.1%
Net income of 4.63M
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MEGAIN Holding Cayman Co Ltd (6939.HK) QQ3 2024 Results Analysis: Solid Net Profit Amid Margin Pressures and Strong Liquidity in a Niche Cartridge/Chip Segment
Executive Summary
MEGAIN Holding Cayman Co Ltd delivered a resilient QQ3 2024 quarter with revenue of CNY 41.96 million, up QoQ by approximately 27.7% but down YoY by about 1.4%. Gross profit stood at CNY 13.47 million, translating to a gross margin of 32.1%, while operating income remained negative at CNY -0.87 million. The EBITDA contribution was modest at CNY 0.52 million, and the company reported net income of CNY 4.63 million, yielding a net margin of 11.0%. A notable feature of the quarter is the substantial non-operating income totaling CNY 6.06 million, which more than offset the operating shortfall and supported a positive pre-tax income of CNY 5.19 million and after-tax earnings of CNY 4.63 million. The reported effective tax rate was about 10.8%.
From a balance sheet perspective, MEGAIN showcases a strong liquidity position underpinned by net cash or net cash equivalents, with cash and short-term investments totaling roughly CNY 229.2 million, while total liabilities remain modest at about CNY 39.4 million against total assets of around CNY 410.2 million. The company exhibits a healthy current ratio of 8.57x and a quick ratio of 7.70x, underscoring ample short-term liquidity. However, operating efficiency signals mixed performance: days sales outstanding (DSO) at 145 days and a cash conversion cycle around 195 days imply working capital that could constrain near-term cash flow despite the strong liquidity buffer.
Overall, MEGAIN appears well-positioned to sustain operations given its cash-rich balance sheet and modest leverage, but it faces margin pressure within a niche technology distribution and design services business. The quarter reinforces a cautiously constructive investment stance: visible optionality from non-operating income and potential upside from operating efficiency improvements and improved working capital management, against a backdrop of a low-debt, cash-rich capital structure.
Income Before Tax: CNY 5,188,500; Pre-Tax Margin: 12.37%
Financial Highlights
Revenue: CNY 41,960,500 for QQ3 2024, YoY -1.39%, QoQ +27.73%
- Gross Profit: CNY 13,465,500; Gross Margin: 32.09%
- Operating Income: CNY -866,500; Operating Margin: -2.07%
- EBITDA: CNY 517,000; EBITDA Margin: 1.23%
- Total Other Income/Expenses: CNY 6,055,000
- Income Before Tax: CNY 5,188,500; Pre-Tax Margin: 12.37%
- Income Tax Expense: CNY 560,000; Tax Rate: ~10.8%
- Net Income: CNY 4,628,500; Net Margin: 11.03%
- EPS (diluted): CNY 0.0089; Weighted Avg Shares: ~518.77m
Balance Sheet Highlights (as of 2024-09-30):
- Cash & Equivalents: CNY 172.35m; Short-Term Investments: CNY 56.83m; Total Cash & Short-Term Investments: ~CNY 229.19m
- Total Current Assets: CNY 330.96m; Total Non-Current Assets: CNY 79.24m; Total Assets: CNY 410.19m
- Total Current Liabilities: CNY 38.61m; Long-Term Debt: CNY 0.14m; Total Liabilities: CNY 39.40m; Equity: CNY 370.79m
- Net Debt: CNY -161.73m (net cash position)
Liquidity and Efficiency:
- Current Ratio: 8.57x; Quick Ratio: 7.70x; Cash Ratio: 4.46x
- DSO: 145 days; DIO: 106.53 days; DPO: 56.74 days; CCC: 251.53 days
- Asset Turnover: 0.102x; Net Income Return on Equity (ROE): 1.25%; ROA: 1.13%
- P/BV: 0.62x; P/S: 5.47x; P/E: 12.39x; Enterprise Value Multiple: 130.87x
Four-Quarter Trend (selected figures):
- 2024-Q3: Revenue 41.96m, Gross Margin 32.09%, Net Margin 11.03%
- 2024-Q2: Revenue 32.85m, Gross Margin 32.43%, Net Margin not stated here but implied mid-single digits
- 2024-Q1: Revenue 32.90m, Gross Margin 32.43%
- 2023-Q4: Revenue 83.49m, Gross Margin 36.75%
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
41.96M
-1.39%
27.73%
Gross Profit
13.47M
-13.90%
26.38%
Operating Income
-866.50K
-127.33%
52.51%
Net Income
4.63M
12.10%
2 186.77%
EPS
0.01
11.30%
2 125.00%
Key Financial Ratios
currentRatio
8.57
grossProfitMargin
32.1%
operatingProfitMargin
-2.07%
netProfitMargin
11%
returnOnAssets
1.13%
returnOnEquity
1.25%
debtEquityRatio
0.03
priceToBookRatio
0.62
priceEarningsRatio
12.39
Net Income vs. Revenue
Expense Breakdown
Management Commentary
No earnings call transcript was provided in the dataset. Consequently, management quotes and thematic takeaways from the QQ3 2024 call could not be extracted. If you have access to the call transcript, I can incorporate direct quotes and contextual commentary by segment (strategy, operations, market conditions).
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Forward Guidance
Management guidance for the QQ4 2024 and beyond is not included in the provided data. Given MEGAIN’s cash-rich balance sheet and modest debt, the company can potentially pursue selective investments in IP, R&D, and international distribution to expand its cartridge/chip business. Key monitoring factors for the outlook include: (1) revenue trajectory and product mix in cartridge/IC components, (2) gross margin stability as non-operating income contribution fluctuates, (3) working capital dynamics to reduce CCC, (4) evolution of non-operating income sources, and (5) any changes in regulatory or trade conditions affecting cross-border sales. If revenue shows sustained QoQ momentum and better working capital efficiency, the firm could improve operating margins while preserving its strong liquidity. Conversely, sustained margin compression or rising working capital needs could temper upside. A prudent watch list includes quarterly revenue growth rate, gross margin trend, operating margin progression, and the net cash position as working capital cycles adapt to demand.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
6939.HK Focus
32.09%
-2.07%
1.25%
12.39%
6909.HK
1.68%
-0.98%
-1.11%
-3.87%
6913.HK
21.70%
-6.33%
0.76%
14.64%
6601.HK
55.20%
-6.60%
0.40%
49.05%
9600.HK
9.07%
-33.90%
-2.52%
-4.58%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
MEGAIN is trading with conservative valuation metrics relative to stronger peers and benefits from a strong liquidity cushion and minimal leverage. The QQ3 2024 results show a positive net income and a solid gross margin, but operating profitability remains challenged by structural costs and the reliance on non-operating income to maintain earnings. The key to upside lies in improving operating efficiency, reducing CCC through working capital optimization, and delivering sustained top-line growth in the cartridge/IC components business. In a scenario where MEGAIN can stabilize or modestly grow annual revenue while flattening costs, the stock could re-rate on earnings visibility and balance sheet strength. Investors should monitor revenue trajectory by customer segment, margin progression, and working capital dynamics, as well as any explicit guidance from management on 2025 targets and capital allocation priorities.
Key Investment Factors
Growth Potential
Potential growth from expanding cartridge/chip design services and international distribution in select markets. Opportunity to leverage non-core income streams to bolster earnings visibility in a niche segment.
Profitability Risk
Key risks include margin pressure from competitive commoditization in chips/cartridges, exposure to PRC and international market fluctuations, dependence on third-party components, and currency/regulatory risk in cross-border transactions.
Financial Position
Strong liquidity with a net cash position and minimal leverage; solid balance sheet supports optionality for investments and potential accretive M&A in adjacent tech niches.
SWOT Analysis
Strengths
Robust liquidity and net cash position (net debt -CNY 161.7m)