Maybank Kim Eng analyst Gene Lih Lai has maintained his “buy” call with an unchanged target price of $1.39 for Frencken Group on the back of stronger-than-expected semiconductor and industrial automation contributions in FY2020 and FY2021.
The positive recommendation also follows the company’s 2HFY2020 results, including earnings of $23.8 million which exceeded Lai’s expectations.
Frencken’s earnings grew 5% y-o-y despite revenue for the period falling 2.3% amidst difficult Covid-19 business conditions and a $6.2 million impairment loss relating to deferred development costs on a product not yet launched. The better earnings are due to grants and lower than expected foreign exchange losses and effective tax rate.
SEE:Frencken Group sees 5.2% growth in 2H20 earnings of $23.8 mil; profit holds steady in FY20 despite slight dip in revenue
In terms of revenue breakdown, Lai notes that Frencken’s semicon segment grew 50.6% y-o-y on the back of the global equipment spending upswing, though this was offset by declines in other sub-segments such as industrial automation (-38%) and medical (-8%).
Nonetheless, Lai says management expects a stronger 1HFY2021.
“Management expects 1HFY2021 revenue to increase h-o-h, primarily driven by semicon, medical and analytical sub-segments. While automotive is expected to be flattish h-o-h, management sees scope for some potential upside,” he writes.
The stronger h-o-h performance projected in 1HFY2021 is in-line with Lai’s expectations of Frencken’s cyclical recovery in 2021 and his overall forecasts.
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“Our FY2021-FY2023 forecasts are largely unchanged, and we maintain ‘buy’ with ROE-g/COE-g TP of $1.39,” he writes.
“We see semicon, analytical, medical and automotive end-markets underpinning Frencken’s cyclical recovery in 2021. Some of Frencken’s semicon customers, such as Applied Materials, are also upbeat about semicon equipment spending strength into FY2022,” he adds.
As at 10.51am, shares in Frencken are trading 1 cent lower or 0.8% down at $1.26.
