Currently, Frencken is riding on the global semiconductor boom, thanks to its role as a key contractor to leading semiconductor capital equipment manufacturers. When asked if the company is considering a larger listing destination, such as Hong Kong, Au says that is not his priority. “At the moment, we are very busy looking at how our business can continue to progress,” he says. “It’s not that we are small today, but I think we have not really reached the pinnacle of what we can achieve.”
Re-establishing connections
Historically, Frencken, whose global operations hub is in Penang, has grown mainly via a series of acquisitions over the last couple of decades, giving it a global footprint of 19 operating sites in Malaysia, the US, China, Singapore, and the Netherlands.
For example, after its 2005 initial public offering (IPO) on SGX, it embarked on a slew of acquisitions, including that of two formerly listed SGX companies: $30 million for ETLA in 2008 and $50.2 million for Juken Technology in 2012. “We have always been pretty much a company of acquisitions. When I first came in, my role was to create a bridge across all the entities,” says Au, who joined the company in 2015.
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“But that bridge is still not strong enough. We need to redevelop the company to make it seamless so that it is really Frencken, and not an amalgamation of Frencken-like companies. That’s really where we are today,” says Au, who, like many regional heads of electronic manufacturers, cut his teeth in the local and regional units of Hewlett-Packard and its spin-offs, specifically, Keysight Technologies and Agilent Technologies.
The various operating entities under Frencken, Au realised, could achieve significantly more efficiency if there was an internal overhaul of sorts. For example, with several enterprise resource planning (ERP) systems in use concurrently, the company has created a “data cloud” to access information where it is needed. However, to maximise operational efficiency and streamline work processes, a single system should be used across the group, which could have a positive impact on the company’s bottom line.
For example, Frencken’s quarterly results are regularly affected by currency movements. It reports in Singdollar, but because of its various manufacturing sites, bills and operating costs are recorded in other currencies, including US dollars, euros and ringgit.
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Although Au readily admits that the multicurrency system is cumbersome, it is what the management team has inherited. Therefore, Frencken is trying to streamline its treasury functions by standardising various administrative and process functions. “You will never hear a multinational paying a 24% tax rate. But that’s what we are doing today. We cannot get away from the legacy system that is set up, so we need to take it apart and put it back together as a better system,” says Au.
Trade war scenarios
Frencken’s efforts to unify its Enterprise Resource Planning (ERP) systems come amid the ongoing global trade war, when it has to leverage its diverse geographical footprint to its strategic advantage.
Like other global manufacturers, Frencken is keenly watching the latest developments in the war. “For every one of our customers, we have various scenarios already drawn up. If this happens, we’ll take this course of action. If that happens, we’ll take that course of action, but I don’t think we’ve triggered any of those scenarios. There’s been a lot of planning, but nothing has happened so far,” says Au.
In China, Frencken’s operations, hindered by US trade barriers, have shifted towards a more distinctly domestic focus under President Donald Trump’s second tenure in the White House, prioritising local over overseas markets. Similarly, in Europe, with Trump back in office and applying tariffs on his erstwhile allies, activities have also shifted towards a more localised or regional focus, rather than being export-oriented.
In any case, the spread of Frencken’s operating sites means it has the flexibility to decide how best to accommodate what customers want. “From a business segment diversity standpoint, we are very diverse. We don’t have one segment that is the only thing that we focus on,” says Au.
Indeed, around 90% of its revenue is derived from its mechatronics segment, where Frencken builds high-precision semiconductor machinery and capital equipment for global original equipment manufacturers. Frencken, in many cases, is the only manufacturer of major parts or modules used in lithography, deposition and etch processes. Semiconductor is Frencken’s leading industry segment, but its mechatronics customers are from analytical life sciences, medical and industrial automation. Frencken also operates an integrated manufacturing services division, serving mainly automotive and consumer electronics customers.
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Au says investors often ask: How can Frencken focus on so many different segments? “If you peel it back one layer, what we have is actually our core competencies, which are really similar across these sectors and anchor what we do.” Frencken’s geographical spread is also an advantage. “That global ability to deploy anywhere we want, with the local richness, both in capability and capacity, plus the ability to work the local supply chain, has been critical,” says Au. In a most telling example, one of Frencken’s customers in the semiconductor segment, seeing how Frencken has already established a supply chain in Asia, decided to tap into it as well.
Kaki Bukit and JS-SEZ
To support anticipated demand, Frencken held the groundbreaking of its new $63 million operating site at Singapore’s Kaki Bukit Avenue 5 on Aug 12. This new facility, with a floor space of 28,594 sqm, will be around 1.4 times the size of the current combined mechatronics operations space at Changi North and Seletar Aerospace Link.
Au explains that Frencken has committed to this hefty capex — one of the largest in the company’s history — so that it can consolidate the different operations across its various sites. With the company doing more work for semiconductor customers, having one large clean room instead of multiple small ones is better for operational efficiency and flexibility. “Having a big building allows us to integrate our operations better,” he says.
For the upcoming Kaki Bukit facility, Frencken, as with most of its new projects, has already secured a certain level of commitments from customers, which means the facility will be humming from the get-go. Au proudly notes that a representative from a key customer even flew in from Europe specifically for the recent groundbreaking ceremony. “We see that as commitment from them, that they are equally committed to us,” says Au.
In its Aug 12 announcement, Frencken said that its teams in Europe and Asia have been working on programme expansions for companies. These include ASML, the Dutch MNC that specialises in the development and manufacturing of photolithography machines, which is expected to contribute to the company’s strategy to expand its supply chain in Southeast Asia.
Of the many locations Frencken operates from across the world, its facilities in Singapore and Malaysia are designed to complement each other. Singapore focuses on more complex assemblies, where volume is lower, while Malaysia prioritises bigger parts, which have higher volume or require more work, with specific requirements such as hand finishing. “They’re not next to each other, but because of the ability for us to move things together, right? I think it’s almost seamless,” says Au.
But why does Frencken continue to invest in Singapore when Malaysia, just next door, has lower operating costs? “Malaysia is definitely an expansion spot for us, but I think Singapore has its own role. Additionally, many of our customers are interested in coming to Singapore to expand their design capabilities and establish a base for their senior IT staff. So I think it makes sense for us to stay close to our key customers,” he explains.
As a manufacturer with operations in both Singapore and Malaysia, Frencken is naturally interested in the developments of the Johor-Singapore Special Economic Zone (JS-SEZ). Au says the SEZ’s key attraction lies in its role as an optimised channel for shifting parts or goods between the two countries, but he is waiting for an opportunity to take advantage of the SEZ in a different and novel way.
For now, Au is “pretty much happy” with the company’s current setup in Malaysia and will need to carefully weigh the start-up costs if Frencken is to build another facility in the SEZ. Pending the confirmation of more details of the development blueprint, Au insists he is neither “bullish” nor “not bullish” about the SEZ. “Until we know more what is actually in it for a company like us, then I think we can make more sound decisions whether we want to be there,” he says.
In a way, Frencken is being realistic about where to best play to its strengths. For instance, it has a more significant presence in Bangi compared to Penang, which, for decades, has been a semiconductor hub, attracting companies like Intel, Lam Research and AMD, and is also more appealing to job seekers, even when the same salary is offered elsewhere. “We are in Bangi, so we are a big fish in a small pond. In Penang, we are a small fish,” says Au.
Market and tech leaders
Interestingly, Au, despite calling the company a “small fish” in the context of Penang, has reached a stage where it can afford to be more selective regarding who it works with. Since Au came on board, he has trimmed the name list, focusing the company’s resources on customers who can take the company to the next level and keep Frencken in business at the same time.
For one, Frencken aims to work with customers who are themselves either market or technology leaders. “If I am relevant to them and they have a strategic relationship with me, Frencken is assured of its survival. So, that’s exactly why I’m confident enough to build a factory, as I know that someone behind it is going to support it and make it happen,” says Au.
He acknowledges that fewer customers may mean higher concentration risks, but the chances of these respective market or technology leaders failing are significantly lower. “We have the biggest lithographic company, we have the biggest wafer processes company, one of the biggest medical equipment company,” says Au.
In any case, Frencken is not betting on just one customer but a diversified list. “So, I think we are in a position that we can say, not all of them will fail, right? In fact, chances of them being successful are probably a lot higher than they failing,” he says.
Demand steady
Indeed, steady demand from these customers, who are enjoying brisk businesses of their own, has helped lift Frencken’s most recent 1HFY2025 ended June earnings by 9.9% y-o-y to $19.9 million, on the back of a 15.7% gain in revenue to $431.4 million. Despite stronger numbers, the report card did not meet the bullish expectations of some analysts. Au is unfazed. He points out that there’s a lot of dynamics in play at the moment, ranging from geopolitical to economic and technological. “For us as a company, we don’t make a lot of bullish statements. We tend to be, and want to be, as repeatable, as reliable, as possible.”
Having led the company for 10 years, Au points out that he never had a year where everything and everywhere was working at the optimal rate. For instance, the new capacity implemented in Asia to meet the anticipated semiconductor demand of 2023 did not yield the expected volume. Yet, in the Netherlands, Frencken’s key customer was pushing strongly ahead, resulting in record revenue. More recently, the trends have somewhat reversed, with demand originating from Asia picking up steam.
If industry projections are accurate, 2027 will be another upcycle for the global semiconductor industry. At the time of the company’s IPO on SGX as ElectroTech back in 2005, its revenue was less than $200 million. Frencken’s most recent FY2024 was just a shade below $800 million, and the $1 billion mark is within striking distance. With the Kaki Bukit facility set to open in 1Q2027, is Frencken poised to hit this revenue milestone? “Thank you for saying it. I’ll try to live up to the expectation. Indeed, I think that’s a magical number,” says Au.
Two years from now, the Kaki Bukit facility is expected to be ready in time to catch the next semiconductor upcycle. “That’s when every cylinder is firing at the same time, and we can get to show what Frencken is all about. We might miss it by a few months, but at least, the capacity will be there,” he says.
There are other reasons to be optimistic as well. In recent months, Singapore’s stock market has finally enjoyed some buoyancy. Besides the Straits Times Index hitting a record high, the small- and mid-cap space is also enjoying some handsome gains. Frencken is often named as a potential beneficiary of the $5 billion in government money that will be allocated to fund managers to invest in small- and mid-caps. Year to date, its share price has gained by around a quarter to close at $1.44 on Oct 15, valuing the company at $615 million.
While overall prices have moved up, private equity (PE) firms, which are notable for sniffing out hidden value, are still closing deals. Spindex Industries, another SGX-listed manufacturer, is in the midst of being privatised by its controlling Tan family with the help of PrimeMovers Equity, and its stock is up by around 50% year-to-date, while Grand Venture Technology was recently acquired by a Dutch company, Aalberts.
Au says that all along, Frencken has dealt with questions from PEs about whether the family of chairman Gooi Soon Chai, who owns more than a fifth of the shares, is open to selling their shares. After finding out the family members have no intention to sell, the question has become, “Can we join you?”. Various partnership permutations have been proposed, including investors acquiring a complementary plant and then integrating it into the combined entity.
“I still meet up with many of them because I don’t close the door. If something is interesting, I’d like to hear about it,” says Au, adding that he has met many other Singapore-based companies pitching the line that “one plus one equals four”. “We’ve looked at it, but I think we have not really entertained anything at this moment,” he says.
Whatever the case, Au plans to increase Frencken’s market valuation first and then explore options later. “Right now, we are really in the midst of growing that value and giving back a fair return to our shareholders,” he says.
Well-written emails a sign of semiconductor demand
Dennis Au has noticed a discernible difference in how some of his colleagues write emails. Those whose writing improved a lot obviously had help from artificial intelligence (AI), versus those who did not, whose emails continue to read like “cr*p”, he laughs.
This observation lends more weight to his belief that the semiconductor industry will experience significant growth due to demand for AI capabilities. Geopolitics is swaying where and how the semiconductor industry will go. Different parts of the entire ecosystem are finding their own ways to manage. Still, with AI applications supporting a big chunk of the underlying demand for semiconductors, he believes that AI has taken root and is no longer just a novelty.
Au points out that when the AI boom started, he was a bit sceptical. The same chips used to power crypto mining machines are used in AI, and demand is obviously growing because of the latter. “I didn’t know anybody who paid a subscription for ChatGPT or anything, but I now know so many people around me are. We’re so addicted to it,” he says.
The bullish view is shared by Chong Yik Ban of PhillipCapital, who observes that Frencken’s revenue trend tracks two of its key customers, ASML and Applied Materials Inc. He sees so-called hyperscalers, the huge tech companies, committing higher and higher capex, which includes AI chips. “We think that there is very strong demand in terms of advanced equipment,” says Chong, speaking on Oct 4 at the brokerage’s presentation on the Singapore market. The underlying industry trends aside, Chong, who has a “buy” call and $1.76 target price on this counter, likes Frencken for trading at relatively undemanding valuations lower than the 26 times earnings fetched by its peers.
Along with the business growth, Au relishes solving problems, a skill that comes naturally to someone who trained as an engineer. A key hurdle in the drive for further efficiency is that chips are still linked together with physical gold wires, and energy is needed to cool the metal. Au believes that, instead of a physical wire, the “pinnacle” is to use optical fibre links to transmit data measured in terabits, rather than the gigabits that gold wire can currently manage. Frencken, drawing on its expertise in materials, has already conducted tests in its labs using fibre link prototypes and is working to commercialise this process.
Frencken was formed via a series of acquisitions over a couple of decades of various companies in Malaysia, Singapore and the Netherlands / Photo: Albert Chua
Frencken’s roots linked to Eindhoven, Penang and Singapore
Frencken’s links with the Netherlands, for historical reasons, remain stronger than ever. The company can trace its roots back to post-war Netherlands, specifically, the city of Eindhoven. Three brothers from the Frencken family founded Frencken Handel & Service in 1947 to trade engineering machinery and tooling. A precision machining company, Machinefabriek, was then established to supply customers with metal parts.
These customers were, and still are, different entities possessing a common DNA derived from Koninklijke Philips, the most renowned Dutch multinational corporation that was founded in Eindhoven in 1891.
Over the years, companies that used the Philips brand name made and sold a multitude of products ranging from things as simple as light bulbs to irons, to TVs, to the most sophisticated medical equipment, such as MRI machines.
Another customer with links to Philips was listed in Frencken’s 2005 initial public offering (IPO) prospectus: ASM Lithography, better known today as ASML, famous for selling top-end lithography machines. Each reportedly costing US$150 million ($194 million) each, these high-tech machineries are used to etch the most high-end semiconductors used by the likes of Taiwan Semiconductor Manufacturing. “You have all these links that go back generations, so everybody knows everybody — that’s one of the advantages we have,” says Au.
In 1978, the Gooi family founded the Precico Group in Penang, undertaking relatively simple manufacturing work of plastic injection moulding and precision turned parts. Growth came from the custom of big names such as Sony, and also through a series of acquisitions across the region. Via a series of deals between 1995 to 1997, Precico assumed control of Frencken Group BV, a Dutch entity, laying the groundwork of what would eventually come together for the 2005 IPO of ElectroTech on the Singapore Exchange. Four years later, in a nod to its Dutch roots, the company was renamed Frencken Group.
