FRENCKEN GROUP LIMITED (SGX:E28)
Frencken Group - Cyclical Recovery Continues
Frencken's 2H20 beat despite impairment; Maintain BUY
- Despite an impairment amounting S$6.2m, Frencken Group (SGX:E28)'s 2H20 PATMI of S$23.8m (+5% y-o-y) was ahead of our and street’s expectations. This was due to grants and lower than expected
- negative FX impact to P&L and
- effective tax rate.
- Management expects 1H21 to grow h-o-h, reinforcing our view of the ongoing cyclical recovery.
- Our FY21-23E forecasts for Frencken are largely unchanged, and we maintain BUY with ROE-g/COE-g target price of S$1.39 (1.6x FY21E P/B).
Expects 1H21 to be stronger h-o-h
- Amid difficult business conditions due to COVID-19, Frencken's 2H20 revenue fell 2.3% y-o-y to S$328.1m. Semicon grew 50.6% y-o-y on the back of the global equipment spending upswing, but this was offset by declines in other sub-segments such as industrial automation (-38%) and medical (- 8%).
- Frencken's management expects 1H21 revenue to increase h-o-h, primarily driven by semicon, medical and analytical sub-segments. While automotive is expected to be flattish h-o-h, management sees scope for some potential upside.
Impairment relates to deferred development costs
- The S$6.2m impairment relates to deferred development costs mentioned in our report: Frencken Group - Maybank Kim Eng 2020-12-22: Recognises Impairment; BUY The Dip, is relating to a product, not yet launched, in the medical segment.
- Frencken's effective tax rate was 17%, contrasting our expectations of 21%. To be conservative and pending clarification from management, we currently assume FY21E effective tax rate of 20% for Frencken, comparable y-o-y.
End-markets broadly favourable
- 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 see semicon, analytical, medical and automotive end-markets underpinning Frencken’s cyclical recovery in 2021. Some of Frencken’s semicon customers, such as Applied Materials, are also upbeat about semicon equipment spending strength into FY22.
- Meanwhile, the life-sciences/ medical end-markets appear increasingly optimistic, driven by the return of non-COVID-19 related lab work/ elective surgeries respectively.
- Key risks are
- if we have overestimated industrial automation growth (+10% y-o-y) in FY21E; and/ or
- weaker than expected volumes, due to either still difficult business conditions/ risks of shortages in the supply chains.
Gene Lih Lai CFA
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-02-26
SGX Stock
Analyst Report
1.390
SAME
1.390
