Frencken Group - CGS-CIMB Research 2020-05-14: 1Q20 Net Profit Slightly Above Expectations

FRENCKEN GROUP LIMITED (SGX:E28)

Frencken Group - 1Q20 Net Profit Slightly Above Expectations

Frencken Group's 1Q20 revenue was slightly below expectations at 22% of our FY20F forecast (1Q19: 24%).
1Q20 net profit was slightly above expectations (22% of our FY20F vs. 19% in 1Q19) on undisclosed foreign exchange gains and lower operating costs.
Reiterate ADD call with an unchanged Target Price of S$1.06.

Frencken Group (SGX:E28) provided its 1Q20 business update yesterday. No detailed financials were released. See Frencken Group Announcements. 1Q20 revenue (-4.8% y-o-y to S$151.4m) was slightly below our expectations at 22% of our full-year forecast (1Q19: 24%).
Net profit (+10.5% y-o-y to S$9.5m) was slightly above at 22% of our full-year expectations (1Q19: 19%) due to undisclosed foreign exchange gains and lower operating expenses. Gross profit margin was relatively stable at 15.6% in 1Q20 versus 15.8% in 1Q19.
Frencken Group's net cash as at end-Mar 2020 was S$92.9m (26.7% of market cap).
The semiconductor and medical segments reported y-o-y growth while the industrial automation and analytical segments experienced lower sales y-o-y. Automotive related sales fell 22.6% y-o-y.

Except for a factory in India, all of Frencken Group’s factories have resumed normal operations. The group has limited visibility for FY20F due to the effects of the Covid-19 outbreak.
In terms of 2Q20F revenue guidance, the semiconductor and medical segments are expected to post q-o-q growth, while q-o-q declines are expected for the industrial automation and automotive segments. The analytical segment is expected to see stable revenue q-o-q.

We leave our forecasts unchanged for now. Our Target Price (S$1.06, unchanged) is still based on 10x P/E multiple (29% discount to the domestic peer average of 14.1x).
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 re-rating catalysts could come from new customer wins and stronger-than-expected sales in its industrial automation segment.
Downside risks are order delays or pullback by customers. We believe a key specific risk is in the industrial automation segment given the high reliance on a single customer.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-14

SGX Stock Analyst Report ADD MAINTAIN ADD 1.060 SAME 1.060