“With the bulk of Frencken’s blue chip customers based in Europe, Frencken will be a strong proxy to the European economy which should see strong revenue growth,” says analyst Edison Chen in a May 11 report.
Riding on strong demand for its products, management expects to see broad-based growth across semiconductor, analytical, medical and automotive segments in 2Q18 while revenue for the industrial automation segment is expected to remain stable.
This year, Frencken’s Mechatronics division intends to add new cleanroom facilities as well as equipment that will improve its high-precision machining capabilities and increase manufacturing automation.
Meanwhile, the Integrated Manufacturing Services (IMS) division is working on several operational improvement initiatives aimed at enhancing its competencies, improving its efficiency and strengthening profit margins like the development an “IMS Centre of Technology” in Johor to centralise its tool manufacturing capabilities for all its factories in Asia.
To recap, Frencken delivered a strong set of 1Q18 results with core net profit jumping 10.8% y-o-y to $6.8 million. Higher sales from Mechatronics offset lower sales from Integrated Manufacturing Services (IMS) to deliver overall revenue growth of 3.2% y-o-y. Gross profit margin softened to 16.7% due to a shift in revenue contributions from the group’s business divisions.
Management attributed higher sales to strong broad-based demand for mechatronics division business segments which made up for smaller sales in automotive due to the sale of Precico Electronics Sdn Bhd (PESB). Excluding PESB’s revenue contribution in 1Q17, automotive sales in 1Q18 would have registered 11.7% growth y-o-y and group revenue would have increased 15.4% y-o-y.
“Maintain ‘buy’ with unchanged PE-based target price of $0.79,” says Chen.
As at 3.05pm, shares in Frencken are trading at 56 cents or 8.6 times FY18 earnings, which is at a discount to peers.
