KGI raises Frencken Group's target price to $1.01

SINGAPORE (Feb 28): KGI Securities’ Joel Ng has upgraded his target price on Frencken from 93 cents to $1.01.
“The recent weakness of its share price presents an attractive opportunity to buy Fencken as the company continues to build on its strength and diversified business base,” says Ng in his Feb 28 note.
At current levels, the stock is trading at just 8.5 times FY2020 earning, and 1.1 times FY2020 estimated book value – which is between 20 to 30% lower compared to both and regional peers.
On Feb 27, the company reported 4QFY2019 earnings of $11.2 million, up 1% y-o-y. However, if the $4.2 million impairment was excluded, Frencken’s earnings would have increased 42% y-o-y.
The company plans to pay a final dividend of 3 cents, up from 2.14 cents in the preceding year.
The company expects its semiconductor and medical segment to generate y-o-y sales growth this current 1QFY2020. Revenue from other segments, such as industrial automation and automotive, however, is likely to decline.
As a whole, Frencken is seen to bear a 5 to 9% q-o-q and y-o-y drop in its 1QFY2020 revenue, which is in line with season patterns, says Ng.
The Covid-19 outbreak is causing some uncertainty, but Ng believes that the company’s $69 million net cash position and strong client base will strengthen its long-term prospects. Furthermore, at current valuation levels, Ng believes Frencken is an attractive takeover target. Year-to-date, Frencken's share price has dropped just over 10% to trade at 86 cents on Feb 28.