“We believe that the gap in valuations is an attractive opportunity, especially with the incoming $5 billion Monetary Authority of Singapore (MAS) equity programme,” writes Seet in his July 20 report.
He adds that with the US looking to rollback several Biden-era restrictions on semiconductor exports to China, Frencken stands a potential beneficiary, as do its clients. With this, Seet has maintained his “buy” call on the stock, identifying it as his “top pick” in Singapore’s tech sector.
Meanwhile, although Frencken has been limited by the absence of larger-size clean rooms in Singapore, especially for one of its key semiconductor clients, its new facility, Seet notes, will be able to house larger cleanrooms which will help “scale up its portfolio” with key wafer fabrication equipment customers.
The new facility should also point to higher margins due to lower production costs in Singapore as compared to Europe. Estimated to yield a gross floor area (GFA) of 28,594 square metres (sqm), the new facility is aimed to begin operations between the FY2027 and FY2028.
Capital expenditure (capex) in the FY2025 to FY2028 will be funded by internal cashflow and external financing resources, adds Seet.
He writes: “It will also help support increasing programs in Asia by its major European semicon and life science customers.”
Frencken’s key customer, semiconductor giant ASML, has indicated an “unsure” FY2026 growth.
“However, we believe that the relaxation of semiconductor equipment restrictions on China will be positive for Frencken,” writes Seet.
For now, he notes that Frencken will “likely continue” to enjoy more market share as it is assisting its European customer to shift production to Singapore.
“With the potential roll back of restrictions, Frencken could be involved in more projects for its key customers,” adds the analyst.
Upside swing factors noted by him include stronger-than-expected semiconductor and industrial automation contributions, robust margin accretion from new products and improving efficiencies and improving institutional interest, which could help the stock re-rate towards peers’ valuations.
Conversely, downsides include a drop in demand, supply chain disruptions and a lower-than-expected dividend pay-out.
As at 1.46 pm, shares in Frencken are trading 10 cents higher or 6.9% up at $1.55.
