FRENCKEN GROUP LIMITED (SGX:E28)
Frencken Group - Strong Improvement In Margins
- Frencken's 3Q20 above expectations; Semiconductor continues to shine.
- Strong improvement in margins due to product mix, higher operational efficiencies.
- Semiconductor, Analytical and Automotive divisions expected to record higher revenues in 2H20.
- Raise Frencken's FY20F and FY21F earnings forecast by 6-18% on better margins; maintain BUY with a higher target price of S$1.51.
Frencken's 3Q20 results above expectations; semiconductor continues to shine
- For 3Q20, Frencken Group (SGX:E28) recorded revenue of S$165.5m, down a marginal 2.8% y-o-y (+17.2% q-o-q), mainly due to lower sales of the Industrial Automation, Analytical and Automotive segments, which was partially offset by increased sales of the Semiconductor segment. Net profit was up 16.7% y-o-y to S$13.3m, mainly tied to an improvement in its gross profit margin.
- On a 9-month basis, revenue and net profit accounted for 73% and 85% of our full-year forecasts respectively, above expectations as 2H20 is expected to be stronger than 1H20, which was affected by the COVID-19 pandemic.
- Frencken's strong improvement in margins due to product mix, higher operational efficiencies, cost control measures. Gross profit margin improved 1.7 percentage points (ppts) to 17.6% in 3Q20 from 15.9% in 3Q19, attributable to a shift in sales mix, higher operational efficiencies and tighter cost control measures. Net margin for 3Q20 improved to 8.1%, from 6.5% in 2Q20 and 6.4% in 1H20.
Outlook for 2H20:
- Semiconductor, Analytical and Automotive divisions are expected to record higher revenues in 2H20 vs 1H20.
Raise Frencken's FY20F and FY21F earnings forecast by 6-18% on better margins.
- 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 have upped both the gross margins for FY20F and FY21F to 17%, from 16.0% in FY20F and 16.2% in FY21F. Net margin has also increased to 7.1% from 6.0-6.1%, on the back of the continued cost cutting measures and improvement in operational efficiencies. Hence, our Frencken's earnings forecasts for FY20F and FY21F are raised by 18% and 6% respectively.
- On the back of the higher earnings, our target price is raised to S$1.51, still pegged to 13.2x FY21F PE, which is at a 20% discount to global peers’ average of 16.5x, given Frencken’s smaller scale.
- Maintain BUY.
Lee Keng LING
DBS Group Research
|
https://www.dbsvickers.com/
2020-11-13
SGX Stock
Analyst Report
1.51
UP
1.430
