Expecting hoh revenue improvement
- 1H22 revenue (S$389m) was in line at 97% of our S$402m forecast and formed 46% of our/Bloomberg consensus full-year forecast.
- 1H22 net profit (S$26.1m) was in line at 102% of our S$25.7m forecast and formed 47%/46% of our/Bloomberg consensus full-year forecast.
- Our TP is raised slightly to S$1.75 (previously S$1.72).
1H22 results: in line with our expectation
1H22 revenue rose 3.6% yoy to S$389m. The Mechatronics division revenue (87.3% of
1H22 revenue) grew 6.2% yoy while the Automotive division (12.5% of 1H22 revenue) saw
a 11.5% yoy revenue decline. 1H22 revenue (S$389m) was in line at 97% of our S$402m
forecast and formed 46% of our/Bloomberg consensus full-year forecast. 1H22 net profit
fell 16.6% yoy to S$26.1m. 1H22 net profit (S$26.1m) was in line at 102% of our S$25.7m
forecast and formed 47%/46% of our/Bloomberg consensus full-year forecast. 1H22 gross
profit margin fell 1.79% pts yoy and 0.58% pts hoh to 15.63% (1H21: 17.42%, 2H21:
16.21%). The decline in the gross profit margin was due to inflationary cost pressures and
additional depreciation expenses as the group invested to upgrade its machineries and
expanded capacity globally.
2H22F outlook: management expects hoh revenue growth
Management guided that 2H22F revenue is expected to post a moderate increase
compared with 1H22. It expects the semiconductor, medical, analytical and life sciences
and automotive segments to post hoh increases in revenue, but projects the industrial
automation segment to see a hoh decrease in revenue. On the margin front, Frencken has
managed to pass on some of the cost increase to customers. Some of these benefits may
be offset by the group’s ongoing investments in its facilities in Europe, Malaysia and
Singapore to pursue additional revenue opportunities for FY23F and beyond.
Reiterate Add on growth potential
We reiterate our Add call (driven by its earnings growth potential) and our TP (based on
FY23F EPS forecast) is raised slightly to S$1.75 (previously S$1.72) as the +1 s.d. P/E
multiple over Jan 17 to Aug 22 has risen to 11.4x (previously, the +1 s.d. P/E multiple over
Jan 17 to Jun 22 was 11.2x). Downside risks are potential production disruptions arising
from Covid-19 infections in its workforce and further cost pressures from higher raw
material costs. Potential re-rating catalysts are increased wallet share with customers and
clinching new customers.
