Frencken Group - CGS-CIMB Research 2021-03-01: Management Sees H-o-h Growth

FRENCKEN GROUP LIMITED (SGX:E28)

Frencken Group - Management Sees H-o-h Growth

Frencken's FY20 revenue at 96.4%/99.0% of our/Bloomberg consensus forecast was in line with expectations.
Frencken's FY20 net profit at 100.2%/104.9% of our/Bloomberg consensus forecast was also in line with expectations.
We reiterate our ADD call as Frencken sees h-o-h revenue growth for FY21F.

Frencken Group (SGX:E28) reported FY20 revenue of S$620.6m, down 5.8% y-o-y. Half-on-half, revenue grew 12.2%. At 96.4%/99.0% of our/Bloomberg consensus expectation, FY20 revenue was in line with expectations.
Despite an S$6.2m impairment loss on deferred development costs relating to a project which the customer decided not to proceed with, Frencken's net profit was flat at S$42.6m, in line at 100.2% of our full-year forecast and 104.9% of Bloomberg consensus.
Frencken maintained its full-year FY20 dividend at S$0.03 per share. Frencken's net cash at end-Dec 2020 was S$107.1m.

Frencken's management guided that 1H21F revenue should grow versus 2H20’s revenue of S$328.1m. Given that 1H20 revenue was S$292.5m, this guidance will also translate into y-o-y revenue growth in 1H21F.
The semiconductor, medical and analytical business segments are expected to see h-o-h revenue growth while the industrial automation segment is expected to see revenue soften in 1H21 due to the lumpy nature of the business. For the automotive segment, 1H21 revenue is expected to be in line with 2H20 with room for higher revenue upside if customers’ move ahead with their business plans.

We tweak our Frencken's FY22F earnings per share forecast for housekeeping purposes and introduce FY23F forecasts. Our target price is raised slightly to S$1.40 (slight increase in gross profit margin assumption), still based on 12x (12.4% discount to the sector average P/E multiple) FY22F forecast.
See Frencken Group Share Price; Frencken Group Target Price; Frencken Group Analyst Reports; Frencken Group Dividend History; Frencken Group Announcements; Frencken Group Latest News.
Downside risks are order pullbacks by customers, while re-rating catalysts could come from new customer wins and stronger-than-expected sales in the industrial automation segment.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-01

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