Frencken Group - CGS-CIMB Research 2020-08-13: Challenging 2H20

FRENCKEN GROUP LIMITED (SGX:E28) | SGinvestors.io FRENCKEN GROUP LIMITED (SGX:E28)

Frencken Group - Challenging 2H20

  • Frencken Group's 1H20 revenue was below expectations, making up just 42%/45% of our/ consensus’ full-year estimates.
  • 1H20 net profit at 44%/46% may be deemed in-line but we note that 1H20 net profit benefitted from forex gains and government grants.
  • Given its challenging 2H20 guidance, 2H strength may be weaker this year. Hence, we adjust our FY20F EPS forecasts lower.
  • Downgrade Frencken Group to REDUCE.



Frencken Group's 1H20 benefitted from forex and government grants

  • Frencken Group (SGX:E28)'s 1H20 revenue was below our/consensus’ full-year expectations at 42%/45% of full-year forecasts. While 1H20 net profit at 44%/46% of our/consensus full-year estimates may be deemed in-line, we note that Frencken Group benefitted from an exchange gain of S$1.1m and government grants relating to COVID-19 of S$2.8m in its 1H20 results.
  • Given the 9.6% y-o-y revenue decline, gross profit margin fell to 15.5% in 1H20 versus 16.4% in 1H19. Frencken Group’s semiconductor segment grew 73.6% y-o-y in 1H20 but other segments (analytical, industrial automation and automotive) saw double-digit y-o-y revenue declines.
  • Frencken Group's balance sheet remained in a net cash position at end Jun-2020.
  • No interim dividend was declared. See Frencken Group Dividend History.


2H seasonal strength may be weaker this year

  • Traditionally, the second-half tends to be stronger for Frencken Group. However, given the company’s guidance that the operating landscape remains challenging in 2H20 due to the effects of the COVID-19 pandemic, we note that 2H strength may be weaker this year.
  • For 2H20, Frencken Group guides that the semiconductor segment is expected to post higher revenue compared to 1H20, while the analytical segment is expected to record a modest increase in revenue compared to 1H20. The medical and industrial automation segments are anticipated to remain stable in 2H20 compared to 1H20.
  • For the automotive segment, Frencken Group expects revenue in 2H20 to be higher than 1H20.


Downgrade to REDUCE from Add






William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-13
SGX Stock Analyst Report REDUCE DOWNGRADE ADD 1.060 SAME 1.060



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