Frencken Group - Maybank Kim Eng 2021-03-14: Thesis Playing Out

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

Frencken Group - Thesis Playing Out


Favourable prospects, cyclically and structurally; BUY

  • Frencken (SGX:E28)’s cyclical and structural prospects remain attractive. As it executes on delivering a breadth of new products with greater value-add in coming years, we see upside potential to net margins.
  • Alongside, institutional interest have been rising as the investment thesis plays out.
  • We raise our target price of Frencken to S$1.74, now based on 14.5x FY21E P/E (+2 standard deviation above 10-year mean), from ROE-g/COE-g-derived 1.6x FY21E P/B previously, to account for longer-term potential of better than expected margins.



Drivers of cyclical dynamics

  • Frencken expects new product introductions in medical and analytical segments in FY21E, of which in some Frencken have increased value-add materially. As elective surgeries return, Frencken expects orders deferred from last year to be realised this year. Semiconductor visibility also appears strong through the entire year. Of the S$23.7m spent on capex in FY20, around 80% was purposed for semiconductor requirements.


Margin upside in medium term

  • Our/consensus’ net margin assumption are 7-8% for FY21-23E. As Frencken increases its value-add with customers over the next few years through a breadth of new products, we see upside potential.
  • IMS segment margins were 5%/8% in FY19-20, a large improvement from 1% in FY17-18, largely driven by continued cost improvements. We believe as Frencken’s proprietary eco-PVD and filters in the automotive sub-segment grow in future years, these could be a further driver of IMS margins.


Momentum in execution underpins rising interest



Read also







Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-03-14
SGX Stock Analyst Report BUY MAINTAIN BUY 1.74 UP 1.390



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