“So far, Frencken has delivered improving quarters since 1QFY2023 and we believe this trend is likely to persist,” says Seet in his Nov 24 report.
FY2024 should also be a “much better” year for group with its semiconductor revenue picking up further on a q-o-q basis due to rising sales in Europe and stable sales in Asia.
As it is, Frencken expects its semiconductor revenue in the 2HFY2023 to outstrip that of 1HFY2023, Seet points out.
“We believe key customers have seen inventory levels normalise and are raising orders. Its key customer in Europe is also trying to move some production to Malaysia. We believe this will continue to benefit Frencken which has assisted the customer in shifting some production to Malaysia,” he says.
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“Automotive segment is also expected to pick up strongly in the next few years due to some new product innovations (NPI) in the works in the electric vehicle (EV) space,” he adds.
At this point, Frencken, which is Seet's top pick within the tech stocks under his coverage, is likely to have hit rock bottom and should see a gradual improvement in the subsequent quarters.
In Seet’s view, there is significant upside, especially if the semiconductor recovery materialises.
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In his Nov 23 note, William Tng of CGS-CIMB maintains both his target price of "$1.37" and his "add" call on the stock, given how the 3QFY2023 earnings were in line with his expectations.
The bullish outlook is because of the expected recovery of the semiconductor industry this coming FY2024 into FY2025, possibly leading to double-digit earnings growth for Frencken for these two years.
For Tng, potential re-rating catalysts include a less severe slowdown in its semiconductor business segment, better cost controls, and greater concessions from customers
on cost pass-throughs.
On the other hand, downside risks are further cost escalations affecting its net profit negatively, and further weakening in demand for its semicon business segment.
As at 10.34am, shares in Frencken are trading 1 cent lower or 0.86% down at $1.15.
