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Frencken Group - CGS-CIMB Research 2021-03-26: 2021 Would Be A Semicon Driven Year

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

Frencken Group - 2021 Would Be A Semicon Driven Year

  • We see Frencken benefitting from the strong outlook for the semiconductor industry over 2020-2022F.
  • The long-term demand driver for its industrial automation segment remains intact.
  • Reiterate ADD on Frencken with a higher target price.



Strong outlook for semicon equipment market

  • In its quarterly World Fab Forecast report (Mar 2021), Semiconductor Materials and Equipment International (SEMI) projected that fab equipment spending in the global semiconductor industry grew 16% y-o-y in 2020, and such growth will continue at a projected 15.5% in 2021F and 12% in 2022.
  • On 23 Mar 2021, Intel announced plans to build two new wafer fabs in the US for an estimated US$20bn. The company also commented that within 2021, it will announce further capacity expansion in the US/Europe or other global locations.


ASML will be a key beneficiary

  • As ASML (ASML US) is the world’s leader in Extreme Ultraviolet Lithography (EUV) technology, we expect it to be a key beneficiary of the growth in fab equipment spending. ASML’s EUV unit shipments have increased from 18 units in 2018 to 31 units in 2020.
  • Intel will be outfitting its planned new US fabs with EUV machines. In addition, memory makers are also warming up to the usage of EUV tools in their production process and ASML believes they will adopt EUV tools in late-2021 to 2022.
  • As ASML is a key customer of Frencken (SGX:E28)’s semicon segment (30% of FY20 revenue), this will support the latter’s earnings outlook for FY21-22F, in our view.


Seagate on track for HAMR drives

  • Seagate Technology (STX US), the key customer in Frencken’s industrial automation business segment (19% of FY20 revenue) remains committed to its plan to introduce its new higher capacity Heat Assisted Magnetic Recording (HAMR) Hard Disk Drives (HDD). Such drives of 20 Terabyte (TB) capacity have been on trial with customers in 2020.
  • Seagate plans to launch 50TB versions of such drives by 2026. We believe this technology change would require capex on Seagate’s part, benefitting Frencken.

Reiterate ADD on Frencken with a higher S$1.61 target price






William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-26
SGX Stock Analyst Report ADD MAINTAIN ADD 1.61 UP 1.400



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