Lim Hui Jie Published on Fri, Aug 13, 2021
Analysts from DBS Group Research and RHB Group have raised their target prices and continue to maintain their “buy” calls on Frencken Group.
DBS has given a target price of $2.65, up from $1.98, while RHB has raised its target price from $2.02 to $2.30.
In an Aug 13 report, DBS’ Ling Lee Keng said the group’s diversification provides “resilience and stability.” She notes that its portfolio offerings provide a stable source of earnings, strengthening its value proposition among peers.
Ling noted that all key segments did well in 1HFY2021, except for the Industrial Automation division, where sales are typically lumpy in nature, leading to a strong set of results in 1H21.
She highlighted that the group’s semiconductor segment accounts for 38% of its revenue as of 1HFY2021, an increase from 36% in 1QFY2021. “The company is well-positioned to benefit in the near to medium term from the current chip shortages,” she points out.
She is also optimistic that the positive impact on Frencken’s semiconductor segment and the recovery in the automotive division can “more than offset” the weaker Industrial Automation division.
But she does warn though, that this is dependent on global market conditions. Frencken has exposure to customers in the US, European Union, and Asia, so a global economic slowdown could impact demand and earnings.
As for RHB’s Jarick Seet, he expects Frencken to deliver a solid FY2021, keeping it as one of the brokerage’s top picks in the Singapore tech sector
Besides the semiconductor shortage that DBS’ Ling highlighted, Seet also pointed at its automotive business, which “boomed” in 1HFY2021. “The global automotive chip shortage was due to a lack of orders placed forward, due to the downtown in the automotive sector in 2020. Chips were allocated to other sectors, as a result.”
However, Seet revealed that Frencken’s management is optimistic that this situation will be resolved and the volume of orders should rebound on stronger demand. Automotive sales jumped 40.3% y-o-y to $30.9 million and are expected to remain stable in 2HFY2021, he noted.
Seet said that despite the delay in orders for its industrial automation segment, he believes FY2021 will be a strong year for Frencken as both its semiconductor and medical divisions should boost profits.
This is because previously, its key customer in the industrial automation segment delayed a new product launch due to supply chain issues. Growth will depend on this end-customer, which has just launched its new product. However, production of this new item has not been ramped up yet.
Seet noted that management is “cautiously optimistic”, 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.
“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 an able management team.”
As at 3.20 pm, shares of Frencken traded at $2.32, with a FY2021 price to book ratio of 2.4 and dividend yield of 2.1%, according to RHB.