Frencken Group - RHB Invest 2020-08-20: Twin Drivers For FY21F; Maintain BUY


Frencken Group - Twin Drivers For FY21F; Maintain BUY

  • Maintain BUY with new DCF-backed Target Price of SGD1.16 from SGD0.90, 18% upside and c.3% yield.
  • We had a call with Frencken's management and came away positive. FY20F should be a muted year from the drop in Frencken’s industrial automation segment as its key customer likely to launch a new product in FY21. However, we expect this segment to recover in FY21F, and coupled with its strong semiconductor segment growth, we lift FY21F PATMI by 10%, thereby raising our Target Price.

Riding on the semiconductor uplift.

  • Frencken Group (SGX:E28)’s semiconductor segment is likely to see strong double-digit growth this year, riding on the uplift in the semiconductor industry. Management has also guided for higher revenue in 2H20F due to higher sales from its customers in Asia and Europe.
  • Based on our channel checks and performance of companies in the supply chain of the semiconductor industry, we believe this segment will continue to be a key positive catalyst for Frencken’s EPS in 2020F.

Factories globally have resumed production.

  • At present, all of Frencken’s manufacturing sites in Asia, Europe and the US have resumed normal operations. In addition, the initial supply chain disruptions caused by the COVID-19 lockdown measures have largely been resolved.

Growth in industrial automation will likely come in FY21F.

  • Frencken’s key customer in the industrial automation segment has delayed its new product launch due to supply chain issues – we think the launch will likely happen in FY21F. As a result, we expect this segment to continue to take a hit and only see recovery in FY21F.
  • Management also guided that the industrial automation segment will remain stable in 2H20 after seeing a 35- 40% drop y-o-y in 1H20.

Undemanding valuation with twin drivers for FY21F.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2020-08-20
SGX Stock Analyst Report BUY MAINTAIN BUY 1.16 UP 0.900