Frencken Group - RHB Invest 2020-12-24: One-off Does Not Impact A Positive Outlook; Keep BUY

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

Frencken Group - One-off Does Not Impact A Positive Outlook; Keep BUY

  • Frencken announced that it would take an impairment loss of S$6.2m associated with the development of a product in the healthcare industry due to a strategic direction change by its customer to not launch the product. Management revealed that the incident does not impact the future outlook of its medical segment as it did not project any revenue from this product and the impairment is a non-cash item.
  • Maintain BUY with a higher DCF-derived target price and ~3% yield.



Just a one-off non-cash impairment.

  • Management expects this impairment to be one-off and will not impact the cash balance of the company. Management did not include any projections from the product in the 2021-2022 projections of its medical segment.
  • Despite the development costs being impaired, Frencken Group (SGX:E28) still owns the design patents associated with this product and could still benefit from it, should the customer decide to launch the product in the future.


Recovery in the automotive sector.

  • Frencken's revenue from the automotive segment is likely to be better in 2H20 vs 1H20, as the automotive sales have picked up after the end of the global lockdown caused by COVID-19. We think revenue from this segment will continue to pick up in 2021 as well.


Growth in industrial automation will likely come in 2021.

  • Frencken’s key customer in the industrial automation segment has delayed its new product launch due to supply chain issues. As a result, we now estimate the launch will likely happen in 2021, expect this segment to continue taking a hit, and only see a recovery next year, in 2021.
  • Frencken's management also guided that the industrial automation segment would remain stable in 2H20 after seeing a 35-40% drop y-o-y in 1H20.

Twin growth drivers for 2021.






Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-12-24
SGX Stock Analyst Report BUY MAINTAIN BUY 1.37 UP 1.220



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