Frencken Group - CGS-CIMB Research 2021-08-16: Revenue Growth To Continue Into 2H21


Frencken Group - Revenue Growth To Continue Into 2H21

  • Frencken’s 2Q21 net profit was 10.4% above our expectation, driven by strong growth in the semiconductor business.
  • Frencken guides that 2H21F will see modest growth on a h-o-h basis.
  • With continued strong demand from customers, we raise our FY21F-23F revenue forecasts, leading to a higher S$2.49 target price for Frencken. Reiterate ADD.

Frencken's 2Q21 net profit above expectations

  • Frencken (SGX:E28)’s 2Q21 revenue grew 35.4% y-o-y and 5.3% q-o-q to S$191.1m while 1H21 revenue grew 28.3% y-o-y to S$375.3m. 1H21 revenue at 51.0% of our/consensus full-year revenue forecasts was in line with expectations. 2Q21 net profit at S$16.6m was 10.4% above our forecast.
  • Frencken’s 1H21 net profit reached 52% of our full-year forecast and was above consensus at 57% of FY21F. Net profit margin improved to 8.7% in 2Q21 versus 6.5% in 2Q20 and 8.1% in 1Q21. 1H21 net profit margin was 8.3% versus 6.4% in 1H20.
  • The semiconductor segment saw revenue growth of 60.2% y-o-y to S$140.8m and accounted for 38% of 1H21 group turnover. The analytical segment also registered 29.4% y-o-y revenue growth to reach S$70.5m in 1H21.
  • The automotive segment experienced a 40.3% y-o-y rebound in growth to reach a revenue of S$43.4m in 1H21 and turned around from a loss in 1H20 to a profit in 1H21.
  • No interim dividend was declared by Frencken.

Management expects h-o-h growth in revenue

  • Frencken’s strategy is to move up the value chain with customers, expand its wallet share with existing customers and develop new customers. Management has guided that 2H21F revenue is expected to post a moderate increase compared to 1H21’s.
  • By business segments, the semiconductor segment is expected to maintain its momentum while the medical and analytical segments are likely to post revenue growth on a h-o-h basis. Management expects revenue for the industrial automation to be weaker h-o-h while the automotive segment’s 2H21F revenue to be stable versus the first half.

Reiterate ADD on Frencken

  • We raise our FY21F-23F revenue forecasts for Frencken by 6.1% to 7.6% as the demand remains strong for most of its business segments. We also make marginal changes to our gross profit margin assumptions, leading to 6.8% to 12.4% increase in our core EPS forecasts over FY21F-23F.
  • Using the current FY22F sector average P/E of 15.0x for tech stocks under our coverage (previously 15.3x), our target price for Frencken rises to S$2.49.
  • See
  • Downside risks are supply chain disruptions due to 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 2021-08-16
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