FRENCKEN GROUP LIMITED (SGX:E28)
Frencken Group - Expecting Sequential Strength
2H21 missed street slightly; still a favourite long term pick
- Frencken (SGX:E28)'s 2H21 PATMI of S$27.6m (+15.6% y-o-y) met our estimate but fell slightly short of the street.
- We trim our target price for Frencken by 1% to S$2.47 (15.5x FY22E P/E), and lower FY22E PATMI by 1.3% to factor in higher costs.
- With improving supply-side dynamics and a robust demand outlook, Frencken's management expects stronger 1H22 revenue h-o-h. We contend Frencken’s revenue and geographical diversity provides earnings resilience through economic cycles.
- BUY. Frencken remains one of our favourite long-term picks.
Semi, analytical and medical drove 2H21 growth
- Frencken's 2H21 revenue grew 19.4% y-o-y to S$391.8m, driven by strength in semiconductor (+51.5%) amid an upswing in global capex spending, medical (+26.4%) and analytical (+25.3%), offset by weakness in industrial automation (IA) and automotive (-15.9% respectively).
- Gross margin fell 2.1ppt to 16.2% on lower automotive contribution. 2H21 net margin was 7.0% (-2.1 ppt y-o-y, -1.3ppt h-o-h) on higher costs (e.g. materials, logistics). Frencken's management aims to improve FY22 margins as supply side disruptions ease.
Sequentially stronger 1H22
- In 1H22, semicon and automotive are expected to be higher h-o-h. We attribute this to easing in supply side issues. IA is expected to be stronger h-o-h, and medical and analytical stable h-o-h. Frencken secured its first radar antenna program using its proprietary plastic metallisation process, and expects the automotive segment to benefit from more programs in the future, driven by V2X trends (vehicle-to-everything) trends.
Risks
- We continue to favour Frencken for its growth prospects as it adds value to existing blue-chip customers – which should lead to margin expansion.
- Currently, Frencken has not seen material impact from the Russia-Ukraine conflict buy it might impact prices (e.g. aluminium) or create further supply chain bottlenecks (e.g. in automotive, where palladium is used to make catalytic converters) if it persists.
- See
Gene Lih Lai CFA
Maybank Research
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https://www.maybank-ke.com.sg/
2022-03-03
SGX Stock
Analyst Report
2.47
DOWN
2.500
