FRENCKEN GROUP LIMITED (SGX:E28)
Frencken Group - Charging Higher With Semiconductor
- Frencken's stellar 1Q21 results driven by strong semiconductor division; above expectations.
- Improvement in margins on higher operational efficiencies and better sales mix.
- Expect semiconductor and medical segments to shine; recovery in automotive marred by chip shortages.
- Raised Frencken's FY21F/FY22F earnings forecast by 14%/18%.
Frencken reported strong 1Q21 results, above expectations.
- Frencken (SGX:E28)'s 1Q21 revenue grew 20% y-o-y (+11% q-o-q) to S$181.5m. This growth was driven by higher sales in the semiconductor, medical, analytical and automotive segments, and partially offset by softer sales in the industrial automation segment. Net profit surged 55% y-o-y (+ 40% q-o-q) to S$14.7m. This improvement was attributable to revenue growth and better sales mix which contributed to a higher profit margin.
- Overall, Frencken's 1Q21 revenue and net profit account for 29% each of our FY21F forecasts, above expectations.
Improvement in margins.
- Frencken's gross profit margin expanded by 1.7 percentage points (ppts) to 17.3% in 1Q21 from 15.6% in 1Q20, attributable to higher sales, shift in sales mix and higher operational efficiencies. Net margin for 1Q21 improved to 8.1%, from 6.3% in 1Q20 and 6.5% in 4Q20.
Recovery in automotive marred by chip shortages.
- Frencken's semiconductor segment continues to shine, up 58% y-o-y and contributed 36.4% to total revenue, up from 30% in FY20 and 17.6% in FY19. The semiconductor segment is expected to do well going forward, on the back of strong global demand for front-end and back-end semiconductor equipment.
- The recovery for Frencken's automotive segment, which started in 2H20, has led to the 14.8% improvement in 1Q21 revenue. However, the recovery is marred by chip shortages. The automotive segment is anticipated to soften in 1H21 as compared to 2H20.
Outlook for 1H21:
- Semiconductor and Medical divisions are expected to record higher revenues in 1H21 vs 2H20, Industrial Automation and Automotive to soften while the Analytical is anticipated to record modest growth.
Raised Frencken's FY21/FY22 earnings forecast by 14%/18%.
- On the back of the strong 1Q21 results driven by better product mix and improvement in margins, we have raised Frencken's FY21F/FY22F earnings forecast by 14%/18%. We have assumed higher contribution from the semiconductor segment, and raised net margins assumption for FY21F and FY22F to 7.9% from 7.3%.
Maintain BUY with higher target price of S$1.98.
Lee Keng LING
DBS Group Research
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https://www.dbsvickers.com/
2021-05-14
SGX Stock
Analyst Report
1.98
UP
1.550
