In his Nov 17 report, Jarick Seet of Maybank Securities notes that Frencken’s 3QFY2025 PATMI of $9.9 million is in line with his forecast as well as consensus estimates.
“We see weakness in analytical life sciences and this could persist in 4QFY2025. Management also guided for lower revenue from a key semi-con customer in Europe due to end market demand moderating, especially in 4Q,” says Seet.
As a result, Seet has cut his FY2025 and FY2026 PATMI estimates by 4.8% and 9.1% respectively to reflect the weakness. However, he is keeping his “buy” call on Frencken, along with a higher target price of $1.72 from $1.60 as he rolls forward his valuation based on 18 times FY2026 P/E ratio.
Meanwhile, William Tng of CGS International notes that Frencken’s 9MFY2025 net profit of $29.8 million is at just 71% of his FY2025 forecast due to lower gross margin but in line with Bloomberg consensus at 75% of FY2025 forecast.
See also: Analysts increase Marco Polo Marine’s TPs to 12 cents and above after shipbuilding contract win
Given the earnings miss, Tng has cut his FY2025 to FY2027 EPS forecast by 4.2% - 7.8% but continues to keep an “add” call on Frencken as he is positive on the long-term outlook for Frencken’s key semicon segment.
“However, to reflect the potential short-term slowdown in demand from its key semicon customer, we cut our target FY2027 P/E ratio to 16 times (+1 standard deviation above its 5-year average) instead of 18.4 times (+2 standard deviation above its 5-year average) previously and hence with a new target price of $1.72,” adds Tng. His previous target price was $2.06.
At the same time, John Cheong of UOB KayHian pointed out that Frencken expects semiconductor revenue to be impacted due to a recalibration in order flow from key customer ASML as it expects end-market demand to moderate following the strong performance over the past two years. Nonetheless, Frencken still expects y-o-y revenue growth for FY2025.
See also: Analysts upgrade Delfi to ‘hold’ after ‘surprisingly strong’ 3QFY2025 results
“Frencken remains confident of its long-term growth prospects. Backed by strong partnerships with market-leading customers, Frencken’s semiconductor segment is well-positioned to capitalise on the secular uptrend of the chip sector. Its mechatronics operations in Asia will continue to work closely with key customers to ride on the recovery in momentum and grow its
wallet share,” says Cheong.
Hence, Cheong is maintaining a “buy” call on Frencken but has reduced his target price from $2.08 to $1.80, which is pegged to 18.8 times FY2026 P/E ratio, based on +1.5 standard deviation above mean P/E ratio (reduced from 21 times, +2 standard deviation).
“The +1.5 standard deviation in our P/E ratio multiple peg is to capture the recovery of the semiconductor cycle and to account for Frencken’s ability to outperform its peers due to its local-for-local manufacturing capabilities and diversified geographical manufacturing facilities,” adds Cheong.
Finally, Ling Lee Keng of DBS Group Research mentions that Frencken is well positioned to capitalise on technology sector recovery, supported by a sound balance sheet and diversified portfolio.
“While the semiconductor segment is on an uptrend, other segments should deliver a steady performance. 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 ahead,” says Ling.
Hence, she is maintaining a “buy” call on Frencken with a lower target price of $1.92, from $2.03 earlier. The lower price is to reflect the 8% to 10% earnings downgrade and a roll-forward of her valuation to FY2026 earnings from the prior blended FY2025 and FY2026 basis. Lee retained her P/E ratio peg to 20 times, which is consistent with the valuation peak seen in 1QFY2024.
As at 1.30 pm, shares in Frencken are trading 4 cents lower or 2.6% down at $1.48, or 27.6% up year to date.
