The group expects its semiconductor and medical segments to post high revenues in the 1HFY2025, the analytical and industrial automation segments to post stable revenues and lastly, the automotive segment to see the lowest revenue contribution.
Dutch industry giant ASML’s 2QFY2025 earnings and net booking beat consensus expectations. It reported EUR7.7 billion ($11.5 billion) in sales versus the forecasted EUR7.5 billion, earnings of EUR2.3 billion versus the expected EUR2.0 billion and net bookings of EUR5.5 billion versus the expected EUR4.2 billion.
“Also, ASML mentioned that it will be positive for chip demand if the US lifts restrictions on some artificial intelligence (AI) processors,” adds Cheong.
Meanwhile, industry leader Applied Materials’ (AMAT) revenue and net income growth for the 2QFY2025 came in 7% and 24% higher y-o-y, respectively. AMAT has highlighted that high-performance, energy-efficient AI computing remains the dominant driver of semiconductor innovation and it is thus working closely with its customers to accelerate the industry’s roadmap.
On this, Cheong writes: “Applied Materials is well-positioned at major technology inflection points in fast-growing areas of the market.”
The UOBKH analyst sees that the semiconductor industry boasts other positive indicators.
These include the US’ relaxed chip restriction rule to allow Nvidia to sell its H20 AI chips to China, Taiwan Semiconductor Manufacturing Company’s (TSMC) 2QFY2025 61% y-o-y increased earnings and full-year forecast for a 30% revenue growth, South Korean tech giant, Samsung’s signing of a US$16.5 billion ($21.2 billion) deal to supply chips to Tesla and lastly, the US’ import tariff exemptions for Malaysian semiconductor products to remain in place.
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On tariff impact, Cheong sees little effect on Frencken, as shipments to the US accounted for only around 9% of its revenue in 2024 and the majority of these exports were shipped from Singapore.
“Moreover, the import tariffs would be borne by customers. Frencken believes its proven business model built on market diversity and strong partnerships with market leaders fortifies its resilience,” writes Cheong.
The group, which has over the past years embarked on strategic initiatives to develop well-balanced capabilities across its global sites through internal knowledge and technology transfers, is in a “unique position” today to leverage its global infrastructure across Asia, Europe and the US, adds Cheong.
Frencken can enable ‘local-for-local’ or supply chain diversification solutions for customers and seize opportunities that may arise from the shifts in global trade.
The analyst writes: “Thus far, Frencken has not witnessed any major changes to its business programmes with key customers. To prevent the disruption of raw materials due to tariff uncertainties, Frencken is working on several mitigating measures which include ongoing discussions with relevant parties on supply chain adjustments and cost pass-through mechanisms where applicable.”
With this, Cheong has rolled over his valuation base year to FY2026 from FY2025. His target price is pegged to 21 times FY2026 price-to-earnings ratio (P/E), based on two standard deviations (s.d.) above the mean P/E.
“The two s.d. in our P/E multiple peg is to capture the recovery of the semiconductor cycle. We have increased our P/E multiple peg from 15 times to 21 times to account for Frencken’s ability to outperform its peers due to its local-for-local manufacturing capabilities and diversified geographical manufacturing facilities,” writes Cheong.
A share price catalyst for the stock noted by him is Frencken’s higher-than-expected factory utilisation rates and better cost management.
As at 5.19pm, shares in Frencken are trading one cent lower or 0.6% down at $1.67.
