Expect 2024 To Be A Recovery Year; Maintain BUY With A 23% Higher Target Price
Frencken’s semiconductor segment is expected to recover in 2024, backed by an improvement in semiconductor fab equipment spending and the recent increase in revenue guidance by its key customers. Frencken’s earnings appear to have bottomed in 1H23, based on its latest guidance of a stable 2H23 vs 1H23, with only one out of five segments expected to show a revenue decline. We raise our target price by 23% to S$1.23 after raising our 2024 earnings forecast. Maintain BUY.
WHAT’S NEW
• Largest semiconductor segment expected to recover in 2024. Frencken Group’s (Frencken) biggest segment, which contributed around 40% of 2022 earnings, is expected to perform better hoh from 2H23 onwards, based on Frencken’s latest revenue guidance. Also, Frencken’s two largest semiconductor customers have raised their revenue guidance in their latest results. ASML has raised its 2023 yoy revenue growth guidance from 25% to 30% in its 2Q23 results and expects 3Q23 revenue of €6.8b (+0% qoq/+17% yoy). ASML highlighted that the overall demand for its systems continues to be strong, resulting in record bookings in 3Q23 of around €8.9b. On the other hand, Applied Materials (AMAT) reported earnings that beat analyst estimates in Aug 23, and also guided for earnings in the coming
quarter to be around 10% above analyst estimates. This was mainly due to improving demand from AI-related chips and rising orders from customers in China who are looking to increase purchases of equipment that are capable of older manufacturing processes.
• SEMI expects global fab equipment spending to recover in 2023. In the 12 Sep 23 quarterly World Fab Forecast Report by Semiconductor Equipment and Materials International (SEMI), global fab equipment spending for front-end facilities in 2023 is expected to decline 15% yoy before rebounding 15% yoy in 2024. Next year’s fab equipment spending recovery will be partly driven by the end of the semiconductor inventory correction in 2023 and strengthening demand for semiconductors in the high-performance computing (HPC) and memory segments. The trend suggests that the semiconductor industry is turning
the corner and on a path back to growth.
• Stable outlook for 2H23 indicates that earnings have already bottomed in 1H23 and there is potential for more new business in Asia. Frencken expects to post stable revenue in 2H23 vs 1H23. The company’s outlooks for its various segments for 2H23 vs 1H23 are as follows: a) semiconductor: higher revenue, b) medical: stable revenue, c) analytical & life sciences: increasing revenue, d) industrial automation: decreasing revenue, and e) automobile: stable revenue. On the other hand, Frencken is seeing more new
business opportunities in Asia than in Europe, especially in Malaysia.
