Last week, The Edge Singapore reported that analysts from three different firms have also kept their “buy” calls on Frencken. Like RHB, analysts from DBS Group Research lowered their target price from $1.90 to $1.77, while Maybank Securities and UOB Kay Hian have unchanged target prices of $1.77 and $1.74 respectively.
Frencken’s 1HFY2024 revenue grew 6.2% y-o-y to $372.7 million, while earnings surged 50% y-o-y to $18.1 million on the back of recovering topline and better gross margins.
This revenue growth was mainly driven by the mechatronics division, which grew 8% y-o-y to $327 million, offset by the integrated manufacturing services (IMS) division’s 4% y-o-y revenue decline to $44 million.
The division saw an increase in orders from a key customer in Europe and recovery in sales from Asia operations, according to Yeo.
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“Both revenue and margins in 1HFY2024 have come in lower than expected,” says Yeo. “Although recovery continues to be in play, it is slower than the pace which we have anticipated.”
As such, Yeo cuts his earnings estimates for Frencken by 7.6% for the FY2025 and FY2026.
He lowers his revenue estimates in view of a slower-than-expected recovery, and has lowered his margin assumptions as higher value programmes may take more time to kick in which will affect the pace of RHB’s previous recovery expectations.
“In spite of our earnings cut, we still see a better 2H2024 and FY2025, driven by a recovery in customer orders going forward,” the analyst notes.
In line with Yeo’s earnings revision, RHB’s 16 times P/E-based target price is reduced to $1.71. The 5% reduction is smaller than his earnings cut, as he rolled over his earnings base from FY2024 P/E to blended FY2024-FY2025.
As at 4.38pm, shares in Frencken Group are trading 2 cents lower or 1.460% down at $1.35.
