Jovi Ho Published on Wed, Jul 14, 2021

Look forward to stronger 2QFY2021 numbers for technology solutions company Frencken Group and its semiconductor segment, says RHB Group Research analyst Jarick Seet. 

In a July 14 note, Seet is maintaining “buy” on Frencken Group, with a target price of $2.02, which represents a 12% upside. 

“We expect higher revenue contributions ahead from Frencken’s semiconductor segment. This lifts our FY2021F PATMI by 6% which, in turn, results in a higher target price that is pegged to 15.2x FY2021F price-to-earnings ratio (P/E). We remain confident that the company will enjoy an excellent FY2021F, as it should continue to be a major proxy to the growth of listed chipmakers in Singapore. 2QFY2021 may also bring a positive catalyst — which should trigger a positive re-rating for the stock,” writes Seet. 

Frencken Group is a global integrated technology solutions company that serves world-class multinational companies in the automotive, healthcare, industrial, life sciences and semiconductor industries.

The company’s automotive business, however, is set to soften slightly in 2HFY2021. The global automotive chip shortage was due to the lack of orders placed forward due to the downtown in the automotive sector in 2020, and chips were allocated to other sectors, as a result. 

According to Seet, Frencken is optimistic that this situation will be easily resolved, and the volume of orders will rebound on stronger demand. 

Meanwhile, the company’s medical and semiconductor segments are still enjoying strong growth. Frencken continues to take in larger orders from the medical industry, on items related to imaging and other scanning-related equipment. Its clients have also reduced their number of go-to parts manufacturers — and are making bigger orders from their remaining suppliers. As such, Frencken is set to see a ramp-up in orders this year, writes Seet.

Management remains bullish on the semiconductor segment too, as all industries that use its chips are expected to grow strongly in FY2021. In 1QFY2021, the company’s semiconductor sales surged by 58% y-o-y to S65.9 million. We expect its chip business to continue expanding robustly over the rest of the year. 

Previously, its key customer in the industrial automation segment delayed a new product launch due to supply chain issues. Growth will depend on its end-customer, which has just launched its new product. However, production of this new item has not been ramped up yet. Management is casually optimistic over this, but remains cognisant that this segment’s performance will significantly depend on its client’s own customers, and the end-users’ reception to this product.

Despite this, Frencken is still a top sector pick, says Seet. “Despite the delay in orders for its industrial automation segment, we believe FY2021 will be a strong year for Frencken, as both its semiconductor and medical divisions should boost profits.”

“We believe there is also room for Frencken’s share price to grow, as its peers are trading at higher valuations. We are also confident over its long-term prospects and able management team,” says Seet.

As at 3pm, shares in Frencken are trading 1 cent lower, or 0.56% down, at $1.79.