FRENCKEN GROUP LIMITED (SGX:E28)
Frencken Group - Twin Drivers To Boost EPS; Stay BUY
- 2020 should be a muted year for Frencken due to the drop in its industrial automation business, as the group’s key customer is likely to launch a new product in FY21. However, we expect this segment to recover in FY21, while the group should enjoy strong growth in its semiconductor division.
- FY21F should be a better year, and we expect Frencken to record decent EPS growth of 12.3% y-o-y then.
Riding on the semiconductor uplift.
- Frencken Group (SGX:E28)’s semiconductor segment is likely to see strong double-digit growth this year, as it should benefit from the uplift in the chip industry. Management has also guided for higher revenue in 2H20F, due to a pick-up in orders from customers in Asia and Europe.
- Based on our channel checks and the performance of companies in the supply chain of the semiconductor sector, we believe this segment will continue to be a key positive catalyst for Frencken’s EPS growth 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 FY21.
- Frencken’s key customer in industrial automation has delayed its new product launch, due to supply chain issues. As such, we believe the launch will likely only happen in FY21. As a result, we expect this segment to continue to take a hit, and only see recovery in FY21.
- Management also guided that the industrial automation segment will remain stable in 2H20, after seeing a 35- 40% drop y-o-y in business, in 1H20.
Twin growth drivers for FY21F.
- Due to the delay in its industrial automation segment, we believe FY21 will be a strong year for Frencken – as both its semiconductor and industrial automation units should drive profits upwards. As such, we project a 12% y-o-y growth in EPS for FY21, and maintain our DCF-backed Target Price of SGD1.16.
- Our Target Price implies an FY21F P/E of just 10.8x.
- Frencken's share price has recovered since about two months ago, but its valuation remains undemanding. Also, there is room for a further re-rating, as its peers are trading at higher valuations. We are also confident of Frencken’s long-term prospects, and in its management team. Premised on this, we make no change to our BUY recommendation.
- 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 downside risks include an economic slowdown, and customers delaying orders.
Jarick Seet
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-10-15
SGX Stock
Analyst Report
1.160
SAME
1.160
