Frencken Group - CGS-CIMB Research 2021-05-12: Semicon Leads The Charge Into FY21

FRENCKEN GROUP LIMITED (SGX:E28)

Frencken Group - Semicon Leads The Charge Into FY21

Frencken’s1Q21 net profit was above expectations at 32.3/ 29.5% of our/consensus’ FY21F forecasts.
The better-than-expected performance was driven by the semicon segment which registered a 58% y-o-y revenue growth in the quarter.
We believe the semicon segment will continue to exhibit strong growth momentum, driving our higher target price. Reiterate ADD.

Frencken (SGX:E28)'s revenue grew 19.9% y-o-y in 1Q21 to S$181.5m driven by higher sales in the semiconductor (+58.0% y-o-y), medical (+5.7% y-o-y), analytical (+11.0% y-o-y) and automotive (+14.8% y-o-y) segments. Industrial automation’s revenue fell 2.1% y-o-y to S$28.7m in 1Q21. Net profit grew 54.7% y-o-y to S$14.7m (1Q20: S$9.5m).
At 32.3/29.5% of our/consensus’ FY21F forecasts, Frencken’s 1Q21 performance was above expectations. The improvement in net profit was driven by revenue growth and better sales mix/operational efficiencies which contributed to a higher gross profit margin of 17.3% in 1Q21 versus 15.6% in 1Q20.
As at end-Mar 2021, Frencken’s net cash balance was S$93.7m.

Frencken guided that it expects its 1H21F revenue to exceed that of 2H20 (S$328.1m), driven by higher sales from most of its key business segments. The semiconductor segment is expected to post higher revenue in 1H21 than in 2H20 (S$98.4m), spurred by strong demand for front-end and back-end semiconductor equipment.
The medical segment’s revenue is anticipated to increase in 1H21 from 2H20’s S$41.1m, while the analytical segment is expected to record modest revenue growth in 1H21 compared to 2H20’s S$61.3m. Revenue for both the industrial automation segment and automotive segment in 1H21 are anticipated to soften from their 2H20 numbers of S$60.8m and S$46.1m, respectively.

We raise our FY21-23F revenue forecasts of Frencken by 7.0-8.6%, driven by higher revenue growth expectations for Frencken’s semiconductor business leading to 18.6-20.2% increases in our FY21-23F earnings per share forecasts.
Using the current FY22F sector average P/E of 13.5x for tech stocks under our coverage (previously 13.8x), our target price for Frencken rises to S$1.87.
See
Downside risks are supply chain disruptions due to the new COVID-19 variants, while re-rating catalysts could come from new customer wins and stronger-than-expected sales in the semiconductor and industrial automation segments.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-12

SGX Stock Analyst Report ADD MAINTAIN ADD 1.87 UP 1.610