SINGAPORE (Nov 7): Analysts are positive on Frencken Group, after the equipment service provider saw its earnings more than double to $11.4 million for the 3Q19 ended September, from $5.3 million in 3Q18.
The earnings surge was on the back of the absence of one-off impairment losses incurred last year.
However, the group also put in a noteworthy performance during the quarter, as 3Q19 revenue increased 3.8% y-o-y to $170.2 million, and gross profit rose 7.4% to $27.0 million.
The increase was contributed by higher sales from the group’s Mechatronics Division in 3Q19, which more than offset a decrease in sales from the IMS Division.
Based on current indicators, the group expects the semiconductor segment and medical segment to post y-o-y revenue growth in 4Q19. However, the analytical, as well as industrial automation segments are expected to decline in 4Q19. The automotive segment is expected to also post softer y-o-y revenue in the next quarter.
DBS Group Research is keeping its “buy” call on Frencken with an increased target price of 95 cents from 80 cents previously.
In a Thursday report, analyst Ling Lee Keng says, “We expect Frencken to benefit from the turnaround in the semiconductor segment given its about 20% revenue exposure. Industrial automation remains a key division, riding on the optimistic outlook of its key customer”
Potential catalysts for the stock include a positive outcome from the US-China trade negotiations and better operational efficiency to improve margins.
Similarly, CGS-CIMB Research is maintaining its “add” recommendation on Frencken albeit with a slightly lowered target price of 94 cents from 95 cents.
Frencken is well-positioned in the new economies of cloud computing, big data, artificial intelligence, Internet of Things and life sciences.
In a Wednesday report, analyst William Tng says, “We have been careful not to extrapolate the growth trajectory for this segment into FY20-21. However, given the increasing need to store data, we believe Frencken will continue to benefit from its exposure to this customer.”
Meanwhile, KGI Securities continues to rate Frencken “outperform” as its share price still offers an attractive entry level. It has a target price of 93 cents on the counter, up from 81 cents previously.
In a Thursday report, analyst Joel Ng says, “Its decent 4% dividend yield, while slightly lower than its peers, may be more sustainable given the group’s diversified operations. As a bonus, we believe Frencken is an attractive takeover target for a larger company given the group’s diverse client and product base, which would be the key catalyst for its share price.”
As at 11.45am, shares in Frencken are trading 2.08% higher at 74 cents, or 1.0 times FY19 book with a dividend yield of 4.0%, according to DBS’ estimates.
