Frencken Group - UOB Kay Hian 2021-11-18: No Surprises In 3Q21 Business Update

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

Frencken Group - No Surprises In 3Q21 Business Update

  • Frencken’s 3Q21 earnings of S$14.8m (+10.7% y-o-y, -10.8% q-o-q) took 9M21 net profit to 77% of our full-year estimate. The business update presented no surprises, as revenue continued to be led by a positive momentum in the semiconductor segment, driving improved operating leverage.
  • We expect the semiconductor segment to continue driving growth going forward, driven by the accelerating development of 5G technology. Maintain BUY.



Frencken's 3Q21 net profit in line with expectations.

  • In its business update, Frencken (SGX:E28) reported headline 3Q21 earnings of S$14.8m (+10.7% y-o-y, -10.8% q-o-q), taking 9M21 net profit to 77% of our full-year estimate. 3Q21 revenue of S$196.5m (+18.7% y-o-y) was in line with its previous guidance; growth was led by the semiconductor (+42.7%), analytical (+29.0%) and medical (+21.8%) segments, which were offset partially by declines in the industrial automation (-17.0%) and automobile (-5.6%) segments.
  • For the quarter, gross margin eased 0.5ppt y-o-y and q-o-q to 17.1% due to expected increases in material and freight costs. This brought 9M21 gross margin to 17.3%, largely in line with our estimates of 17.4% for 2021.


Structural growth drivers in the semiconductor sector intact.

  • Frencken remains in a good indicative demand from clients points towards continued growth going into 2022.


Near-term demand for semiconductor components to remain strong.

  • The current chip of the secular uptrend, which is likely to be sustained into 2022.


Gross margin uplift towards 17.4%.

  • This compares with the 15.2-16.9% range in 2016-19, with the increase attributable to the higher share of the more profitable semiconductor segment from 16% in 2016 to an estimated 40% in 2022 (2020: 30%). Additionally, the ongoing group-wide cost-cutting measures and efficiency improvements such as upgrading of equipment and facilities are expected to improve operating margins, further bolstering bottom-line.


Valuation & Recommendation






Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-11-18
SGX Stock Analyst Report BUY MAINTAIN BUY 2.620 SAME 2.620



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......