The remaining 91% of the group's sales are for locally-based customers or non-US destinations, he adds. At present, Frencken's customers are bearing most of the tariffs, if applicable, and there are minimal export sales from Frencken's factories in China into the US, the analyst continues.
Yet, the group has kept its revenue outlook for the 1HFY2025 ending June 30, which it first guided in its results commentary in FY2024. In 1HFY2025, the group expects its revenue to be stable h-o-h. Segmentally, Frencken's management expects revenue to grow for its semiconductor segment and see stable performance for its medical, analytical & life sciences, as well as automotive and industrial automation segments.
To Tng, the group kept its outlook as its customers have not changed their order indications in 1QFY2025.
However, he believes that the group's automotive segment, which makes up 8% of its FY2024 revenue, could see more "challenging conditions" due to the higher costs from the tariffs.
See also: Nanofilm’s 1QFY2025 garners mixed reactions
"Frencken also has a manufacturing facility in Spokane in the US (capacity expanded four-fold in FY2024) to help its US customers, if needed," says Tng in his April 22 report. "We believe higher import cost, if any, will be passed on to customers after discussion."
With this, Tng has maintained his "add" call as he still likes the group's outlook for its key semiconductor segment. The segment is likely to help the group's core earnings per share (EPS) growth in FY2025 to FY2027, he notes.
That said, his lowered target price comes as Frencken's valuation is likely to drop to 11.1 times or -1 standard deviation (s.d.) below its five-year P/E average due to investors' concern over any earnings impact from the tariffs. Tng previously valued Frencken at 13.5 times based on his FY2026 forecast EPS and five-year average P/E multiple.
See also: Parkway Life REIT's 1QFY2025 shows it is in the 'pink of health'
After conversations with Frencken's management, Tng also notes that the group will continue its plan to build a new plant in Singapore to support its key semiconductor customer based in the city-state.
"We believe the potential capex involved for the new plant could range between $40 million - $60 million, and a decision should be made within FY2026," he says.
As at 3.27pm, shares in Frencken are trading 1 cent lower or 0.95% down at $1.04.
