RHB Group Research analyst Jarick Seet remains bullish on Frencken Group and believes further upside to its share performance is possible.
He maintains his ‘buy’ rating for the counter with a higher target price of $1.77 from $1.52 previously, pegged to a higher multiple of 14 times on the rerating of tech stocks globally
“We are still confident that the group will enjoy an excellent FY2021 [ending December], and remain among the main proxies for semiconductor growth in the Singapore listed space,” he says in a research note on April 13.
Seet expects Frencken’s medical segment to continue recording strong growth on the back of large medical orders relating to CT scan and other scan-related equipment.
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“[Frencken’s] clients have also reduced their number of manufacturers, giving larger orders and new products to the retained manufacturers, yielding higher margins – Frencken has a number of these slated to ramp up in FY2021,” Seet writes.
Seet also anticipates all areas of Frencken’s semiconductor segment to grow strongly in FY2021, noting that management is bullish that growth will continue.
Despite the global chip shortage, Seet believes Frencken’s automotive sector to be stronger y-o-y on the back of higher demand.
“The global automotive chip shortage was due to a lack of orders placed forward, owing to the sector’s downturn in 2020 – the chips were allocated to other sectors as a result. Management is optimistic that this situation will be easily resolved, and volumes will resume to higher levels on stronger demand,” Seet explains.
The analyst believes further upside to Frencken’s share price is possible despite its already strong performance, with Frencken's share price growing more than 120% in the last year.
Seet believes upside will be driven by growth from its industrial automation segment, along with stronger profits from its semiconductor and medical segments for FY2021.
Contribution from the industrial automation segment was previously delayed due to Frencken’s key customer delaying its new product launch following supply chain issues, according to analyst.
But given that the customer has now launched its new product, Seet believes there is potential room for growth, subject to the reception of the product and whether the customer will ramp up production.
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“All in, we believe there is room for further re-rating, as its peers are trading at higher valuations,” he says.
“We are also confident on Frencken’s long-term prospects and its management team, and hence, retain our ‘buy’ recommendation,” he adds.
As at 9.52am, shares in Frencken are down 2 cents or 1.26% lower at $1.57
