CGS-CIMB Research analyst William Tng has kept his “add” call on Frencken Group E28 with a higher target price of $1.37 from $1.10 previously.
“We reiterate our ‘add’ call on Frencken as it seems to be seeing the early stages of recovery among its semiconductor customers, in our view, leading to a potential resumption in double-digit core earnings per share (EPS) growth in FY2024 to FY2025,” Tng writes in his Oct 19 report.
His higher target price is due to a rollover to FY2025 still based on an unchanged FY2025 P/E of 12.2x based on its five-year FY2019 to FY2023 average.
Going into FY2024 to FY2025, the analyst is expecting the company to see firmer orders from its customers, whose inventories have now been depleted.
“In our view, compared to 1HFY2023 when customers were not willing to accept components from Frencken due to their excess inventory situation, Frencken is now able to ship the components it is producing to customers,” says Tng.
“The Netherlands accounted for 27.2% of Frencken’s FY2022 revenue. In our view, given the higher production costs in Europe and the difficulty in hiring workers, Frencken could benefit from production outsourcing opportunities from Europe into Malaysia,” he adds.
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For the 3QFY2023, Frencken is likely to report revenue of $176.8 million, 9.5% down y-o-y. Its net profit is estimated to drop by 45.1% y-o-y to $6.0 million.
In addition, the group had guided in its 1HFY2023 results that it was “cautious” on its FY2023 outlook. The group previously stated that it expected revenue to be stable on a h-o-h basis.
“For 2HFY2023, Frencken has provided the following guidance for its segmental revenue: semiconductor segment to see higher revenue h-o-h; medical segment to register stable revenue h-o-h; analytical & life sciences segment revenue to increase h-o-h; industrial automation segment revenue to decrease h-o-h; and its automotive segment revenue to stay stable h-o-h,” says Tng.
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Frencken is expected to release its 3QFY2023 update by Nov 27.
Shares in Frencken closed 4 cents lower or 3.64% down at $1.06 on Oct 20.
