Frencken - UOB Kay Hian 2022-03-04: 2H21 Results In Line; Semiconductor Remains Key Driver In 2022

SGinvestors.io

FRENCKEN GROUP LIMITED (SGX:E28)

Frencken - 2H21 Results In Line; Semiconductor Remains Key Driver In 2022

• Frencken (SGX:E28)’s 2H21 earnings of S$27.4m (+14.9% y-o-y, -12.6% h-o-h) took full-year net profit to S$58.7m (+38%), meeting estimates. In 2021, the semiconductor sub-segment (+55.6%) led positive operating leverage on sustained demand for lithography systems.
• Expected ROE uplift from top-line expansion to continue into 2022-24 for Frencken, supported by streamlining of operations and cost initiatives, with 3-year EPS CAGR of 18.9% over the period.

Frencken's 2H21 Results

• Semiconductor sub-segment clear growth driver… Frencken’s 2H21 revenue of S$391.8m (+19.4% y-o-y, +4.4% h-o-h) brought 2021 revenue to S$767.1m (+23.6%). For the year, this was led by positive contributions from the semiconductor (+51.5%), medical (+26.4%) and analytical & life sciences (+25.3%) sub-segments, but was partially offset by industrial automation (-15.9%) and automotive (-15.9%).
• … outweighs slow automotive sub-segment. While Frencken's 2H21 gross margin eased to 16.2% (2H20: 18.3%, 1H21: 17.4%) mainly on supply chain bottlenecks in the automotive industry, we are of the view that the chip shortage situation is anticipated to improve in 1H22. Nevertheless, Frencken’s full-year net profit improved to S$58.7m (+38%) on higher net margin of 7.7% (+0.8ppt), thanks to better profitability of the semiconductor sub-segment.
• Management declared a first and final dividend of S$0.0413 (2020: S$0.03), maintaining the 30% payout ratio.

1H22 to be sequentially better.

• Relative to 2H21, sales guidance is anticipated to be better for semiconductor, industrial automation and automotive back of 10.5% revenue CAGR over the same period, due to better operational efficiency. We expect 2022-24 EBITDA margins to normalise at the 12.5% range, compared to the sub-10% region between 2014 and 2018.

Frencken - Earnings forecast & recommendation

• No changes to our attractive due to its strong earnings growth profile, with EPS CAGR estimated at 18% over 2021-24.
• See
  • Frencken's Share Price,
  • Frencken's Target Price,
  • Frencken's Analyst Reports,
  • Frencken's Dividend History,
  • Frencken's Announcements,
  • Frencken's Latest News.
• Catalysts:
  • Higher-than-expected factory utilisation rates.
  • Better-than-expected cost management.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-03-04

SGX Stock Analyst Report BUY MAINTAIN BUY 2.060 SAME 2.060