FRENCKEN GROUP LIMITED (SGX:E28)
Frencken Group - Solid 1Q19, Robust Outlook Ahead; Stay BUY
- Stay BUY and DCF-backed Target Price of SGD0.82, 33% upside plus 5% yield.
- FRENCKEN GROUP LIMITED (SGX:E28)'s topline rose 14.7% y-o-y to SGD159m and PATMI surged 27.2% to SGD8.6m, mainly due to 194.4% y-o-y surge in the Industrial automation segment.
- Management guided for a positive outlook, with 2Q19 continuing to see strong y-o-y growth for this segment, and continued growth for analytical and medical segments.
- We project 27% boost in FY19F PATMI. At 6.8x FY19F P/E vs peers’ 9.9x, we believe Frencken is undervalued.
Industrial automation to lead growth in FY19.
- Frencken's sales at the industrial automation segment, which are typically lumpy in nature, increased significantly by 548.4% y-o-y in 4Q18 and 194.4% in 1Q19, boosted by increased orders for storage drive production equipment from a key customer that is setting up a new factory.
- Management expects to post strong y-o-y growth in 2Q19 due to the same reason – we expect these growth factors to continue to drive sales in 2Q19 and 3Q19, which should be very positive for Frencken.
- Management is also bullish on the outlook of its analytical and medical units, and expects continued y-o-y growth of these segments in 2Q19. We are projecting y-o-y growth in FY19 for these two units as well, driven by new customers and new projects.
Dividends likely to increase.
- With a 30% payout ratio, and our projection of continued y-o-y growth in earnings, we believe dividends will increase despite an unchanged dividend payout ratio.
- We expect Frencken's FY19 dividend yield to increase to around 4.5%. See Frencken's dividend history.
Attractively valued, with a surge in growth for FY19F.
- We believe Frencken’s technology, which has been making rapid advancements in recent years, will provide more solutions to its customers and support future projects, in terms of margins and profitability.
- As the stock is trading at just 6.8x FY19F P/E – well below its peers’ 9.9x, and with a 4.5% FY19F dividend yield – we believe Frencken is undervalued and will likely continue to re-rate upwards, as earnings growth continues to pick up in subsequent quarters.
- Key risks include economic slowdown, and customers delaying orders.
- See also the initiation report: Frencken Group - Riding The Industrial Automation Boom.
- Frencken is also one of the RHB's Top Singapore Small Cap Companies - 20 Jewels 2019 Edition.
Jarick Seet
RHB Securities Research
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Lee Cai Ling
RHB Invest
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https://www.rhbinvest.com.sg/
2019-05-10
SGX Stock
Analyst Report
0.820
SAME
0.820
