Maybank Securities analyst Jarick Seet has kept his “buy” call on Frencken Group with a raised target price of $1.34 from $1.20, with indications of bigger order volume from its customers riding the recovery of the semiconductor sector.
Seet’s new target price is based on a blended 12x FY2025 and FY2026 earnings instead of just 12x FY2025, earnings, to standardise his valuation methodology across Singapore’s semiconductor players.
Seet, who calls Frencken his top pick in the Singapore tech space, expects orders to increase by 30% from a key European customer in 1HFY2025, followed by a US customer in the second half.
“We believe the outlook for 1HFY2025 to be stronger than we initially expected and will likely benefit more if the highly anticipated semi-con recovery happens in 2HFY2025,” says Seet, who adds that there will be more clarity in April and May.
Frencken is also considering a $40 million to $60 million capacity expansion in Singapore to support the expansion of one of its key semiconductor customers here. Already a new facility in the US will be inaugurated by June, which will expand capacity and help Frencken capture new future opportunities.
“We continue to like Frencken and believe it will remain a key beneficiary of the recovery of the semiconductor industry. However, with the ongoing macro uncertainty and Trump’s tariffs, we believe customer demand may be impacted,” says Seet.
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Upsides noted by the analyst include stronger-than-expected semiconductor and industrial automation contributions, robust margin accretion from new products and improving efficiencies and finally, improving institutional interest, which could help the stock re-rate towards peers’ valuations.
Conversely, downsides include a drop in demand, supply chain disruptions that impede Frencken’s production ability and revenue recognition and lastly, a lower-than-expected dividend pay-out.
In contrast to Seet’s increasingly bullish stance, RHB Bank Singapore analyst Alfie Yeo now has a more restrained view. He has similarly kept “buy” call on the stock but, citing lower margins fetched in FY2024, Yeo has cut his target price to $1.48 from $1.71.
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“Although Frencken showed revenue and earnings growth, 2HFY2024 h-o-h acceleration, and margin improvement in FY2024, the results trailed our expectation. While revenue exceeded our forecast by 3%, net profit and earnings before interests and taxes (ebit) were below our expectations by around 15% due to lower-than-expected margins.”
With this, Yeo has now recalibrated his margin forecast to the current run rate, which results in a 13% reduction to FY2025 and FY2026 earnings estimates.
Going forward, he expects revenue growth to be more positive, led by continued recovery in the semiconductor segment, with order momentum from customers continuing to build up into 2025.
“That has led us to raise our FY2025 and FY2026 revenue by 3% each. Despite the net profit cut, we remain positive on earnings recovery going forward, albeit at a slower pace,” writes Yeo.
