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
- We downgrade our rating for Frencken Group from Add to REDUCE as we lower our FY20F net profit forecast by 5%. Our Target Price (S$1.06, unchanged) is still based on 10x P/E multiple (19% discount to the domestic peer average of 12.3x).
- We believe current FY21F earnings expectations are priced in. De-rating catalysts are order delays or pullbacks by customers.
- See Frencken Group Share Price; Frencken Group Target Price; Frencken Group Analyst Reports; Frencken Group Dividend History; Frencken Group Announcements; Frencken Group Latest News.
- We believe a key specific downside risk is in the industrial automation segment given its reliance on a single customer.
- Upside risks could come from new customer wins and stronger-than-expected sales in its industrial automation segment.
William TNG CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-08-13
SGX Stock
Analyst Report
1.060
SAME
1.060
