Frencken Group - RHB Invest 2020-03-09: Outlook Still Bright For FY20F; Upgrade To BUY

FRENCKEN GROUP LIMITED (SGX:E28)

Frencken Group - Outlook Still Bright For FY20F; Upgrade To BUY

Upgrade to BUY, from Neutral, with a higher DCF-backed Target Price of SGD1.05, from SGD0.91, 26.5% upside and c.4% yield.
We had a call with the management of Frencken Group (SGX:E28) and came out optimistic as Frencken should continue to benefit from its key customer in the industrial automation segment, and from an uplift in the semiconductors sector.

We raise our FY20F EPS by 14%, which results in a higher DCF-backed Target Price of SGD1.05.

The trade war already prompted many global companies to look for alternative supply chains, besides relaying solely on China; COVID-19 added an extra incentive to do so. With Frencken’s production base located outside China, we believe the company could be one of the beneficiaries of this trend.
Management revealed that it is in talks with several customers and, provided these talks materialize, it would have to increase its capex.

Frencken’s semiconductor segment is likely to see a strong double digit growth this year, riding the expected uplift in the overall semiconductor space. Management has also guided for an y-o-y growth in 1Q20F due to higher sales from its customers in Asia and Europe.
Based on our channel checks and performance of companies in the supply chain in the semiconductor sector, we believe that this segment will be a key positive catalyst for Frencken’s EPS in 2020F

Management remains bullish to benefit from its key customer’s new product in the industrial automation segment for FY20F, despite expecting a drop just for 1Q20F. 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.
With a positive outlook ahead, despite current macroeconomic conditions, we think Frencken is one of the rare manufacturing firms that is still likely to deliver y-o-y growth this year. As a result, we lift our FY20F EPS by 14%, which results in a higher DCF-backed Target Price of SGD1.05 (from SGD0.91) and lift our call to BUY from Neutral.
See Frencken Group Share Price; Frencken Group Target Price; Frencken Group Analyst Reports; Frencken Group Dividend History; Frencken Group Announcements; Frencken Group Latest News.
Key risks include an economic slowdown and customers delaying orders

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-03-09

SGX Stock Analyst Report BUY UPGRADE HOLD 1.05 UP 0.910