RHB Group Research’s Jarick Seet has maintained his “buy” call and target price of $2.64 for Frencken Group after its 50% acquisition of polymer maker Penchem, along with an agreement to purchase a further 1.92% ownership.
Penchem is focused on designing, developing, formulating, and manufacturing of polymer materials that are primarily aimed at applications and solutions for the electrical and electronics industry.
It is also in markets such as coatings, adhesives, and fillers for industries such as the automotive, marine, and aerospace segments.
Seet is optimistic on the “synergistic benefits of the acquisition”, adding that it also enables “inroads to an enviable customer footprint”.
He elaborates that Penchem has a manufacturing facility in Penang with a comprehensive and advanced laboratory for the design and testing of chemicals and polymers.
Furthermore, the company has a customer footprint that includes MNCs in the semiconductor, fibre optics, solid-state lighting, consumer electronics, and automotive markets.
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Penchem is able to diversify into markets that are increasingly seeking strong, lightweight, and stable material systems that are also environmentally friendly.
Applications for these include uses in smart plastics, electric vehicles, robots, and plastic mouldings, among others, of which most of them are products Frencken deals with.
He thinks there is potential of revenue scaling for Penchem, saying “this partnership will most likely allow Penchem to significantly leverage on the synergistic benefits arising from global market accessibility of both companies.”
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This translates to Penchem being able to potentially scale its revenue baseline due to having a larger and broader clientele, which could boost Frencken’s consolidated profitability, Seet adds.
As of 1.40pm, shares of Frencken Group were trading at $1.71, with a FY2021 price to book ratio of 2 and dividend yield of 2.5%.
