Frencken Group - Maybank Kim Eng 2021-05-14: Momentum Continues

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FRENCKEN GROUP LIMITED (SGX:E28)

Frencken Group - Momentum Continues

1Q21 beat; maintain BUY

• Frencken (SGX:E28)'s 1Q21 PATMI of S$14.7m (+54.7% y-o-y) accounted for 29% of our/ consensus’ FY21E, driven by strength in semicon, medical, analytical and automotive. Frencken continues to expect 1H21 revenue to be stronger h-o-h. We continue to favour Frencken for positive alignment of both cyclical and structural prospects.
• Maintain BUY on Frencken with target price of S$1.74 (14.5x FY21E P/E).

Cyclical recovery in many sub-segments

• Frencken's revenue grew 19.9% y-o-y to S$181.5m, driven by higher sales in semiconductor (+58% y-o-y, 36% of sales), medical (+5.7%, 13% of sales), analytical (+11%, 18% of sales), and automotive segments (+14.8%, 12% of sales). This was offset by softer industrial automation sales (-2.1%, 16% of sales).
• Gross/net margin expanded 1.7ppt/1.8ppt y-o-y to 17.3%/8.1% respectively on the back of favourable product mix, operating leverage, and improved efficiencies.

Outlook by end-markets

• Frencken continues to expect 1H21 revenue to be stronger h-o-h. Outlook for semiconductor (higher h-o-h), medical (higher h-o-h), analytical (modestly higher h-o-h), and industrial automation (softer h-o-h) are unchanged. Automotive is now expected to be softer h-o-h (prev: stable h-o-h), which we believe is due to to chip shortages along the supply chain creating production bottlenecks, in turn affecting Frencken.
• Meanwhile, semiconductor strength is a result of chip shortages driving demand for both front-end and back-end equipment.

Risks

• We remain comfortable with our FY21E estimates for Frencken as
  • Frencken and has largely maintained 1H21 outlook and posted strong 1Q21 performance;
  • semiconductor momentum is strong; and
  • automotive contributions are not outsized.
• We believe key risks are
  1. chip shortages capping growth momentum; and
  2. our potential overestimation of industrial automation contributions in FY21E.
• See
  • Frencken's Share Price,
  • Frencken's Target Price,
  • Frencken's Analyst Reports,
  • Frencken's Dividend History,
  • Frencken's Announcements,
  • Frencken's Latest News.
• Meanwhile, we see stronger than expected semiconductor momentum to be a key upside driver.

Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-05-14

SGX Stock Analyst Report BUY MAINTAIN BUY 1.740 SAME 1.740