Driven by its strong semiconductor division, Frencken Group is gaining momentum while remaining stable with diverse operations, say analysts.
“We like Frencken for its diversified portfolio of product offerings, which provides a stable source of earnings, strengthening its value proposition among peers. Share price has rebounded approximately 30% from the low in March to reach a high of $1.60 in April, outperforming the FTSE ST Technology Index (+10%) during the same period,” writes DBS Group Research analyst Ling Lee Keng in a May 14 note.
Ling is maintaining ‘buy’ on the company with a raised target price of $1.98 from $1.55, which represents a 39% upside.
Frencken manufactures components and modules for various industries including semiconductor, life sciences, automotive and industrial automation.
See: Further upside to Frencken's share price is possible: RHB
Frencken’s 1QFY2021 ended March 31 revenue grew 20% y-o-y (+11% q-o-q) to $181.5 million. This growth was driven by higher sales in the semiconductor, medical, analytical and automotive segments, and partially offset by softer sales in the industrial automation segment, notes Ling.
Net profit surged 55% y-o-y (+ 40% q-o-q) to $14.7 million. This improvement was attributable to revenue growth and better sales mix which contributed to a higher profit margin. “Overall, 1QFY2021 revenue and net profit account for 29% each of our FY2021F forecasts, above expectations,” says Ling.
Semiconductor accounts for 36% of its revenue as at 1QFY2021, notes Ling. “The company is well positioned to benefit from the current chip shortages, in the near to medium term.”
Meanwhile, Maybank Kim Eng Research analyst Lai Gene Lih sees even stronger results ahead. “Frencken continues to expect 1HFY2021 revenue to be stronger h-o-h. Outlook for semiconductor (higher h-o-h), medical (higher h-o-h), analytical (modestly higher h-o-h), and industrial automation (softer h-o-h) are unchanged,” writes Lai in a May 14 note.
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Lai is maintaining “buy” on the company with a target price of $1.73, which represents a 25% upside.
According to Maybank Kim Eng Research, major shareholders in Frencken include the Gooi family (9.4%), relatives of the company’s late president Gooi Soon Hock, Micro Compact Sdn Bhd (6.2%) and Precico Holdings Sdn Bhd (6.1%).
According to RHB Group Research analyst Jarick Seet, Frencken's medical and semiconductor segments are still recording strong growth.
"Frencken continues to enjoy larger medical orders related to computerised tomography (CT) scans and other imaging-related equipment. Its clients have also reduced their number of go-to manufacturers, and are making larger orders for existing and new products from their respective pools of retained product suppliers. This should mean higher margins for Frencken, as it expects some of these such orders to ramp up in FY2021," writes Seet in a May 18 note.
Seet is maintaining "buy" on the company with an unchanged target price of $1.77, which represents an 17% upside.
"Management remains bullish on its semiconductor business as well, and all chip-related orders are likely to grow strongly y-o-y in FY2021F. It is confident that the strong growth will likely continue across the various business segments in the semiconductor space. In 1QFY2021, semiconductor segment sales surged 58% y-o-y to S$65.9 million," Seet adds.
As at 2.14pm, shares in Frencken are trading 9 cents higher, or 6.34% up, at $1.51, or 1.6x P/B according to DBS Group Research’s estimates.
