Analysts at CGS International (CGSI) and DBS Group Research (DBS) have both kept their respective “add” and “buy” calls on Frencken Group at raised target prices (TP) of $1.40 from $1.38 previously and $1.48 from $1.47 previously.
On the other hand, although the analyst at UOB Kay Hian (UOBKH) has similarly maintained a “buy” call, at a lowered TP of $1.16 from $1.31 previously.
For Frencken’s FY2024, net profit grew 14.3% y-o-y to $37.1 million, driven by a 6.9% y-o-y rise in revenue to $794.3 million. Revenue growth was driven mainly by the semicon segment, which grew 29.4% y-o-y to $365.5 million on better demand from its key customers.
“As the semicon segment also tends to generate better profit margins, Frencken’s gross margin in FY2024 improved to 14.5%,” writes CGSI’s William Tng.
For the 1HFY2025, Frencken’s management guides that it expects revenue in the period to be stable compared with 2HFY2024, with higher revenue for its semicon segment and stable h-o-h performance for its medical, analytical and life sciences, automotive and industrial automation segments.
To cater for new and expanded existing programmes, as well as future business growth, Frencken has indicated that the group is considering building a new plant in Singapore to support its key semicon customers based here.
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Tng writes: “In its FY2024 results call with investors, management guided that the potential capex involved for the new plant at $40 million to $60 million and a decision could be made in FY2026.”
Overall, Tng remains positive on the outlook of Frencken’s key semicon segment, which he notes will help FY2025 to FY2027 core earnings per share (EPS) growth.
He writes: “Given the uncertainties from trade tariffs and geo-political tensions that could affect Frencken’s semicon customers, we now value Frencken at 13.5 times of our FY2026 EPS.”
“We reduce our FY2026 net profit forecast by 14.2% as we underestimated Frencken’s operating expenses previously,” adds Tng.
Potential re-rating catalysts noted by him include a faster recovery in the group’s semicon business segment driven by new end-consumer products, better cost controls, and greater concessions from customers on cost pass-throughs.
Conversely, downside risks include further cost escalation affecting the group’s net profit negatively, and a further weakening in demand for its semicon business segment.
DBS analyst Ling Lee Keng notes that overall, Frencken’s FY2024 net profit and revenue met expectations.
She expects the group’s 1HFY2025 to be better than 2HFY2024, driven by the semiconductor segment, while stable performance is expected in other segments.
“With its diverse exposure to multiple market segments and sound financial position, the group is in a good position to continue riding on the recovery path going forward,” writes Ling.
As a result, the DBS analyst has slightly raised her earnings projections for FY2025 and FY2026 by 1% to 3%, mainly to account for the improvement in gross margin.
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Meanwhile, UOBKH’s John Cheong has lowered his TP marginally given the uncertain global economic outlook, despite the semiconductor industry’s forecasted recovery.
He notes that in Frencken’s FY2024, growth in the semiconductor segment was driven by increased orders from a key customer in Europe and continued recovery in sales from the Asia operations.
The analytical life sciences segment saw higher sales from a key customer in Europe, while the automotive and industrial automation segments saw a decline in revenue due to slower customer orders.
Cheong adds: “Its diverse exposure to multiple market segments, entrenched relationships with global companies who are among market leaders in the high technology industry, and sound financial status help provide resilience and enable Frencken to thrive over the long term.”
He concludes: “We have reduced our P/E multiple peg from 14 times to 12.5 times to account for the more uncertain geopolitical environment.”
The UOBKH analyst notes that one share price catalyst for Frencken is a higher-than-expected factory utilisation rate.
Shares in Frencken closed 2 cents lower or 1.85% down at $1.06.
