“This is in tandem with the weak demand and semiconductor oversupply for components for the majority of 2023. Global personal computer shipments were also down by 29% y-o-y in 1Q2023, according to International Data Corp,” says Yeo.
Additionally, ASML Holding — which is a key contributor to Frecken’s mechatronics division sales from the semiconductor sector — is facing risks of extreme ultraviolet equipment order cuts from its largest customer, Taiwan Semiconductor Manufacturing Co (TSMC).
TSMC has pared down its 2023 capital expenditure, which would have a trickle down effect and dampen Frecken’s earnings growth over the near term. Following these, RHB has cut its FY2023 and FY2024 net profit estimates by 6% and 5% to $49 million and $52 million to reflect the deferment of orders.
Meanwhile, Frencken’s FY2022 earnings are largely in line with RHB’s expectations at $52 million, 12% lower y-o-y. This was on the back of 2.5% y-o-y growth revenue to $786 million.
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Revenue for the mechatronics division grew 4% y-o-y, led by the medical sector and increased orders from front-end semiconductor equipment customers in Europe and Asia. The revenue for the integrated manufacturing services division, on the other hand, declined by 11% y-o-y due to the weaker-than-expected recovery of the global automotive industry amid supply chain disruptions.
Gross processing margin narrowed to 15.1% as a result of cost pressures in Europe and higher depreciation costs from its global manufacturing expansion. This also pulled Frecken’s EBIT margin down to 8.5% despite some operational cost efficiencies.
Moving forward, key upside risks to RHB’s earning forecasts include a sooner-than-expected recovery in semiconductor demand.
As at 11.55am, shares in Frencken are trading 1 cent higher or 0.96% up at $1.05.
