Frencken Group - Maybank Kim Eng 2021-06-21: Stars Are Aligned

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

Frencken Group - Stars Are Aligned


Investment case: cyclically and structurally aligned

  • We favour Frencken (SGX:E28) both cyclically and structurally. Cyclically, ~70% of revenues (e.g. semicon, medical, analytical, etc) are in various stages of upswing. Structurally, the company continues to deepen value-add with customers, which should translate into a breadth of products that commands better margins over the next several years.
  • Our target price for Frencken is based on 14.5x FY21E P/E. BUY.



Catalysts: robust demand from several sub-segments

  • We see catalysts for Frencken from stronger-than-expected momentum in:
    1. semiconductor equipment (amid chipmakers’ capex upswing and chip shortages);
    2. medical (deferred orders from last year to be realised this year amid a recovery of elective surgeries); and
    3. industrial automation (if key HDD customer has to materially expand capacity amid current HDD shortages).
  • Stronger-than-expected margin expansion momentum, driven by favourable product mix and cost control, may also be a catalyst.


Valuations: further re-rating on rising insti interest

  • Frencken's share price is trading at 12.5x FY21E P/E, and our target price is based on 14.5x FY21E P/E (+2 standard deviation above 10-year mean). We believe our target price is not onerous, as:
    1. SG-listed technology peers are trading at around 15x FY21E P/E; and
    2. Frencken’s earnings quality has improved remarkably since current CEO Dennis Au joined in 2015.
  • Furthermore, we do not rule out further re-rating as institutional interest in Frencken continues to build.

Risks: components shortages a double-edged sword?






Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-06-21
SGX Stock Analyst Report BUY MAINTAIN BUY 2.000 SAME 2.000



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......