Results Analysis: 1H22 results in line, higher costs a drag on bottomline
- 1H22 net profit decreased 17.3% y-o-y on higher operating costs; inline
- Margins weak in 1H22; near term cost pressures will remain
- Higher revenue guidance for 2H22 vs 1H22 for all segments except industrial automation
- No change in forecasts given inline results; maintain HOLD call with TP of S$1.36
1H22 net profit decreased 17.3% y-o-y on higher operating costs; inline. Frencken reported 1H22 revenue of S$388.9m (+3.6% y-o-y, -0.7% h-o-h). The key semiconductor segment, which accounts for 39.3% of the total revenue, continues to do well, up 8.5% y-o-y and 2.5% h-o-h. The analytical & life science and industrial automation divisions also registered growth on a y-o-y basis. The automotive division remains weak, still affected by the supply chain bottlenecks while the medical segment was dragged down by slower sales to its customers in Europe.
Net profit for 1H22 came in at S$26.1m, down -16.6% y-o-y. Overall, 1H22 revenue and net profit account for 47% and 49% of our full year forecasts respectively, within our expectations as 2H is typically a stronger half.

Weak margins in 1H22 due to higher operating costs; cost pressure will persist. Gross profit margin eased to 15.6% in 1H22 from 17.4% in 1H21 due to variation in sales mix and inflationary cost pressures. In addition, depreciation expenses also climbed in 1H22 as a result of the group’s capital investments to upgrade and expand its global manufacturing facilities. Net margin of 6.7% for 1H22 is lower than the 8.3% in 1H21 and 7.7% for FY21, attributable to increased operating costs, weaker performance of the automotive segment and expansion costs of new production facilities in Europe, Malaysia and Singapore.
Costs are expected to remain high in the near term as the group continues to create new pillars for growth with the recent acquisitions of Avimac and Penchem, expansion of facilities in Europe, Malaysia, and Singapore with large format machining and cleanroom assembly space, and the expansion of its workforce, paving the way for future growth.
On a positive note, the supply chain disruption is expected to improve going forward and this should help to ease some pressure on margins. Furthermore, the group also continues to work on mitigating cost inflation through its operational initiatives and passing some of the increased input costs to customers from 2H22.
Guidance: Higher revenue for 2H22 vs 1H22 for all segments except industrial automation, which is typically very lumpy in nature, and tracks the capex of its key customer.

Maintain HOLD call with TP of S$1.36. No change in forecasts, given the inline 1H22 results. Maintain HOLD call with TP of S$1.36, which is pegged to peers’ average of 11x on FY22F earnings. We will turn more positive when margins show signs of improvement. Will provide more updates, if any, after the results briefing next Monday.