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Frencken Group - Maybank Kim Eng 2020-11-12: Surpassing Expectations

FRENCKEN GROUP LIMITED (SGX:E28) | SGinvestors.io FRENCKEN GROUP LIMITED (SGX:E28)

Frencken Group - Surpassing Expectations


3Q20 beat; target price +4.5%; Maintain BUY

  • Frencken Group (SGX:E28)’s 3Q20 PATMI of S$13.3m (+16.7% y-o-y, +44.5% q-o-q) was ahead, with 9M20 forming 84%/82% of our and consensus expectations. Versus our forecast, industrial automation and automotive fell less than expected, while gross margin surprised positively.
  • We lift Frencken's FY20-22E earnings forecast by 4-9% to reflect the strong results.
  • We like Frencken for its long-term margin growth potential from increased value-add with customers. Maintain BUY with higher ROE-g/COE-g target price of S$1.39 (1.6x FY21E P/B).



Mix and efficiency drive GPM expansion

  • Frencken's revenue fell 2.8% y-o-y to S$165.5m, primarily due to lower industrial automation (-32% y-o-y), analytical (-4.8%) and automotive sales (-4.4%), offset by growth in the semiconductor segment (+49.5%). However, PATMI rose 16.7% y-o-y, due to a 1.7ppt increase in gross margin to 17.6%. This was in turn driven by a favourable shift in sales mix, higher operational efficiency and tighter cost control.


Semi, analytical and automotive drive h-o-h growth

  • Frencken is guiding for 2H20 revenue to grow modestly from 1H20, driven by h-o-h increases in semiconductor, analytical and automotive segments. Medical is guided to decline h-o-h, while industrial automation is guided to remain stable.
  • Frencken's balance sheet is clean with net cash to equity of around 8%.

Long-term margin expansion potential






Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-11-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.39 UP 1.330



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