Frencken’s improved 12% y-o-y earnings of $10 million for the period came in-line with UOBKH analyst Roy Chen’s expectations, forming 25% of his full-year forecast.
Group revenue also grew 12% y-o-y, largely driven by a 43% y-o-y surge in its semiconductor segment and a 1% y-o-y increase in its medical segment.
Chen writes: “Growth in the semiconductor segment was driven by steady growth from a key customer in Europe and strong rebound in sales from its Asia operations. Operations in Asia benefitted from a pick-up in demand and also reaped rewards from its efforts to broaden its product portfolio with key customers in the front-end equipment sector.”
Frencken’s analytical life sciences segment was stable, with higher sales from its Asia operations and increased orders from a major customer in Europe helping to offset softer demand from other customers.
On the other hand, the automotive and industrial automation segments saw a decline in revenues at 14% y-o-y lower and 19% y-o-y down respectively.
For the 1HFY2025, the group holds a cautiously optimistic stance and expects moderate revenue growth in the period compared with the 2HFY2024, with expectations for a continued revenue climb in the semiconductor and medical segments, stable revenue in the analytical life sciences and industrial automation segments and lastly, lower revenue for its automotive segment.
“Also, Frencken maintains a cautious view against the backdrop of increasing geopolitical and macroeconomic uncertainties,” writes Chen.
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While many manufacturers are bracing for possible impact from the US tariffs, the analyst does not believe it is significant for Frencken, as its shipments to the US accounted for only around 9% of revenue in FY2024.
He writes: “Moreover, the import tariffs would be borne by customers. Frencken believes its proven business model built on market diversity and strong partnerships with market leaders fortifies its resilience.”
Overall, Chen sees that Frencken is in a “unique position” to leverage its global infrastructure across Asia, Europe and the US to enable a ‘local-for-local’ model and supply chain diversification solutions for customers and seize opportunities that may arise from the shifts in global trade.
He adds: “To prevent the disruption of raw materials due to tariff uncertainties, Frencken is working on several mitigating measures which include ongoing discussions with relevant parties on supply chain adjustments and cost pass-through where applicable.”
Chen’s higher TP is pegged to a 15 times FY2025 price-to-earnings ratio (P/E), based on 1 standard deviation (s.d.) above the mean P/E to capture the recovery of the semiconductor industry.
One share price catalyst is higher-than-expected factory utilisation rates and better cost management.
Meanwhile, CGSI’s William Tng is “not surprised” that Frencken has lowered its 1HFY2025 revenue guidance to moderate growth versus 2HFY2024 given the uncertainties arising from April’s tariff policies.
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Overall, Tng stays positive on the outlook for Frencken’s key semiconductor segment, which he notes would help FY2025 to FY2027 core earnings per share (EPS) growth.
“Despite management lowering its 1HFY2025 revenue outlook, it is in line 1QFY2025 performance and currently unchanged momentum with its key customers could support our 13% FY2025 EPS growth forecast,” writes the analyst.
Potential re-rating catalysts include a faster recovery in the group’s semiconductor segment driven by new end-consumer products, better cost controls, and greater concessions from customers on cost passthroughs.
Conversely, downside risks include further cost escalation affecting net profit negatively, and a further weakening in demand for the semiconductor segment.
“Management also guided in its results call that it will fund the planned Singapore expansion via cash and bank borrowings,” adds Tng.
Finally, DBS Group Research’s (DBS) Ling Lee Keng has maintained her “buy” call on Frencken at an unchanged TP of $1.48.
She writes: “With close to 50% of revenue derived from the semiconductor segment, Frencken is well-positioned to benefit from cyclical tailwinds, while its diversified portfolio offers earnings stability.”
As at 12.14 pm, shares in Frencken Group are trading 1 cent lower or 0.89% down at $1.12.
