Results First Take: 1Q22 slightly below expectations on weaker margins
- 1Q22 slightly below expectations on weaker margins
- Revenue for most segments higher y-o-y except for automotive
- Guided for moderate increase in 1H22 revenue vs 2H21; toned down expectations for some segments
- We currently have a BUY call with TP of S$2.09
Revenue for most segments higher y-o-y except automotive. Frencken reported a 9.3% y-o-y (+2% q-o-q) growth in revenue to S$198.4m. Higher sales for the semiconductor, analytical & life sciences and industrial automation segments in 1Q22 were partially offset by softer sales for the automotive segment. The automotive division was affected by constrained customer demand as a result of semiconductor chip supply chain challenges and disruptions arising from the military conflict in Ukraine. Net profit eased 12.6% y-o-y (+1.7% q-o-q) to S$12.8m, accounts for 19% of ours and consensus forecasts, slightly below expectations.
Segmental revenue breakdown
| Segment | S$m | Y-o-Y (%) |
| Semiconductor | 76.1 | +15.5 |
| Medical | 23.0 | – |
| Analytical & Life Science | 38.9 | +16.7 |
| Industrial Automation | 31.2 | +8.7 |
| Automotive | 19.3 | -10.7 |
| Consumer & Industrial Electronics | 4.8 | +3.5 |
| TOTAL | 198.4 | +9.3 |
Source: Company, DBS Bank
Weaker margins. Gross profit margin declined 1.9 percentage points (ppt) to 15.4% in 1Q22 from 17.3% in 1Q21 owing mainly to rising raw material prices amid supply chain disruptions and increased production overhead costs. The higher production overhead costs were due mainly to increases in depreciation expenses, electricity costs as well as rent, repair and maintenance costs. Net margins eased to 6.5% from 8.1% in 1Q21, similar to 4Q21.
Potentially easing of supply chain disruption from 2H22. The group envisages this pressure to show signs of easing potentially from 2H22 as it continues to work on mitigating cost inflation through operational initiatives. In the last few years, Frencken has demonstrated its ability to improve net margins from the various operational initiatives in place, including rationalisation exercise and improvement in productivity. Net margin improved from <5% to >6% from FY19.
Expect moderate increase in 1H22 revenue vs 2H21; toned down expectations for some segments. Overall, Frencken expects to register higher revenue in 1H22 as compared to 2H21. In terms of segmental performance, except for semiconductor and analytical & life sciences, the guidance for the rest of the segments was lowered from 4Q21.
Guidance for 1H22 revenue vs 2H21
| Segment | Current Guidance | Previous Guidance |
| Semiconductor | Higher | Higher |
| Medical | Lower | Stable |
| Analytical & life sciences | Higher | Stable |
| Industrial automation | Stable | Higher |
| Automotive | Marginal improvement | Higher |
Source: Company, DBS Bank
We currently have a BUY call with TP of S$2.09. Will provide more updates, if any, after briefing tomorrow.