Frencken announced on June 3 that its wholly-owned subsidiary, ETLA, had accepted an offer from Jurong Town Corporation (JTC) for the lease of an industrial land parcel at Kaki Bukit Avenue 5 in Singapore.
From this, the group intends to develop a “new and larger” manufacturing facility at this site for the expansion and consolidation of its mechatronics manufacturing operations in Singapore, which is currently located at Changi North and Seletar Aerospace Link.
The grouo expects construction of the new facility, which will cover around 28,594 square metres, to commence in the 3QFY2025 and be completed by the 1QFY2027.
Frencken estimates that the construction and fit-out work for the new facility’s five-storey building as well as equipment capital expenditure (capex) could come in at around $63 million and will be funded internally and through borrowings.
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Tng and Tan write in their July 28 report: “In addition, Frencken guided that, on a proforma basis, FY2024 net profit would be reduced by 3.8% from $37.2 million to $35.7 million arising from costs relating to the new facility.”
“Frencken said its intention to set up the new facility in relatively higher-cost Singapore is to lay a stronger foundation for continued expansion of its mechatronics business here in response to customer requests,” add the pair.
Along with improved productivity, the analysts see that the development will also expand the group’s capacity, particularly for larger cleanrooms, to scale up its business portfolio with key wafer fabrication equipment customers, according to the company.
Tng and Tan write: “Additionally, the expansion in capacity and capabilities will enable the group to support increasing program transfers to Asia from its major semiconductor and analytical life sciences customers in Europe.”
Their target price is based on 18.4 times FY2026 price-to-earnings ratio (P/E ), at two standard deviations (s.d.) above its five-year average.
The analysts had previously valued Frencken at 12.2 times on investors’ concern over earnings impact from tariffs.
Potential re-rating catalysts noted by Tan and Tng include a faster recovery in Frencken’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 further weakening in demand for its semicon business segment.
Shares in Frencken closed five cents lower or 2.94 cents down at $1.65 on July 30.
