Despite the recent tech sell-down, Frencken Group remains attractive with strong potential in its medical and semiconductor segments, says RHB Group Research analyst Jarick Seet.
Seet is maintaining “buy” on the technology solutions company, with a target price of $1.52.
“On March 8, we hosted Frencken Group for a non-deal roadshow (NDR) and came away feeling more confident of our bullish call despite the recent tech sell-down. We estimate this is an opportunity to purchase shares at a more attractive level and remain positive on its growth this year,” writes Seet in a March 9 note.
Frencken is a global integrated technology solutions company that serves world-class multinational companies in the automotive, healthcare, industrial, life sciences and semiconductor industries.
See: Frencken Group sees 5.2% growth in 2H20 earnings of $23.8 mil; profit holds steady in FY20 despite slight dip in revenue
For the 2HFY2020 ended December, Frencken Group saw 5.2% higher earnings of $23.8 million from earnings of $22.7 million posted the year before, bringing full-year earnings to $42.6 million, 0.5% higher than FY2019 earnings of $42.4 million.
Frencken Group’s revenue fell 5.8% y-o-y to $620.6 million for the full year FY2020 ended December, owing to lower sales contributions from both the Mechatronics and IMS Divisions.
That said, revenue increased 12.2% h-o-h to $328.1 million in 2HFY2020 from $292.5 million in 1HFY2020 on the back of a gradual recovery in business conditions.
For more stories about where the money flows, click here for our Capital section
According to Seet, the group’s medical and semiconductor segment continues to enjoy strong growth. “Frencken continues to enjoy larger medical orders relating to computed tomography or CT scans and other scanning-related equipment. The company’s clients have reduced the number of manufacturers, place larger orders and new products to the manufacturers retained, which yield higher margins. Frencken stands to benefit from this trend,” notes Seet.
Meanwhile, the company management is remaining bullish also on its semiconductor segment, as most areas of the segment will likely grow strongly y-o-y in FY2021, says Seet.
The group’s automotive segment is estimated to be stronger y-o-y despite a chip shortage, says Seet. Despite a lack of orders placed forward due to the downtown in the automotive sector in 2020 and chips being allocated to other sectors, Frencken Group is optimistic that this situation will be resolved and volumes will resume back to higher levels due to the stronger demand.
See also: Maybank Kim Eng maintains 'buy' on Frencken as 2H20 earnings beat expectations
The recent correction represents a buying opportunity, highlights Seet. “Due to the delay in Frencken’s industrial automation segment, we believe FY2021 will be a strong year for the group, where both its semiconductor and medical segments should drive profits upwards.”
“Overall, we believe there is also room for further re-rating, as peers are trading at higher valuations. We are also confident of Frencken’s long-term prospects and its management team.”
As at 10.22am, shares in Frencken are trading 2 cents higher, or 1.59% up, at $1.28.
