Frencken Group - UOB Kay Hian 2020-08-14: 1H20 Results On Track; Underlying Strength In Semiconductors


Frencken Group - 1H20 Results On Track; Underlying Strength In Semiconductors

  • Earnings of S$18.7m (-4.9% y-o-y) came in-line with expectations, forming 48% of our full-year estimate. The strongest showing was from the semiconductor (+73.6%) segment, while the already-weak automotive (-37.3%) unit got hammered further by COVID-19 lockdowns. Notably, management anticipates a better 2H20 performance for the semiconductor segment, relative to the first half.
  • We maintain BUY on Frencken Group with a higher target price of S$1.37 after rolling forward the valuation base year to 2021F.

Frencken Group's 1H20 Results

  • Frencken Group (SGX:E28)'s 1H20 net profit of S$18.7m (-4.9% y-o-y) came in at 48% of our full-year estimate. The dip in earnings was due to lower revenue of S$292.5m (-9.6%), mainly as a result of lumpy sales in the industrial automation segment and a sharp reduction in sales of the automotive segment, caused by the shutdown of factories by global car manufacturers in Feb 20.
  • Notably, the semiconductor segment (+73.6% to S$87.9m) displayed significant strength due to increased orders for both front-end and back-end equipments.

Solid growth momentum in semiconductor segment to continue.

  • On the back of a strong recovery in the global semiconductor industry, management anticipates a stronger 2H20 relative to the first half, in line with our expectations that Frencken Group would benefit from positive market trends in 5G, Internet Of Things and artificial intelligence.
  • Meanwhile, the medical and analytical segments continue to be resilient despite minor supply chain disruptions arising from the COVID-19 lockdowns.

Headwinds in automotive to remain.

  • While management anticipates higher revenue for 2H20 as compared to 1H20, the global automobile market remains in a structural decline due to the economic slowdown. Fortunately, management has been active in scaling down the cost of operations for the segment for some time and profitability appears to have stabilised.


Slight increase in 2021-22F revenue assumptions on stronger demand.

  • Despite supply chain disruptions in 1H20, Frencken Group’s semiconductor segment reflected strength in demand for both front-end and back-end equipment. Accordingly, we have tweaked our revenue forecasts slightly higher by 5% and 3% for 2021F and 2022F, respectively, to reflect the current environment.

Balance sheet remains strong.

  • Over the past six months to end-1H20, Frencken Group's net cash pile inched up 4% to S$72.0m, constituting 14% of market cap. With the solid operating cash generation ability, along with ongoing cost-cutting measures and efficiency improvements, we believe Frencken Group could see greater operating leverage when growth returns in the medical and analytical segments.


  • We keep 2020F earnings unchanged, but raise Frencken Group's 2021-22F net profit forecasts by 7% and 4% to S$46.2m (+19.1%) and S$53.4m (+15.5%), respectively, after imputing higher revenues going forward.


Maintain BUY on Frencken Group with a higher target price of S$1.37, up from S$1.15.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-08-14
SGX Stock Analyst Report BUY MAINTAIN BUY 1.37 UP 0.790