DBS Group Research, Maybank Securities, OCBC Investment Research (OIR) and CGS International have maintained their “add” or “buy” calls on Frencken Group E28 , while downgrading their target prices.
CGS International analyst William Tng has downgraded his target price to $1.38 from $1.55 while DBS analyst Ling Lee Keng lowered her target price to $1.47 from $1.77 previously.
Meanwhile, Maybank analyst Jarick Seet downgraded his target price to $1.50, from $1.54 previously, while noting that Frencken remains his top pick in the Singapore tech sector.
OIR analyst Donavan Tan has downgraded his target price from $1.74 to $1.42, but remains positive on Frencken’s long-term prospects.
RHB Bank Singapore, on the other hand, has maintained its “buy” call with a target price of $1.71, remaining “upbeat” on Frencken as its 3QFY2024 results are in line with its expectations.
The reports follow Frencken’s business update for 3QFY2024 ended Sept 30, on Nov 19. During the quarter, Frencken’s revenue rose by 7.7% y-o-y to $198.6 million while its profit after tax and minority interests (patmi) surged by 29.3% y-o-y to $9.2 million. The figures were below the estimates of the consensus, DBS and Maybank.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
Frencken reported 9MFY2024 revenue of $571.3 million, a 6.7% y-o-y increase, in line at 74% of CGSI analyst William Tng’s full-year forecast but below Bloomberg’s consensus forecast at 72%.
Frencken’s 9MFY2024 net profit of $27.3 million, a 42.5% y-o-y increase, formed 63% of both CGSI Tng’s and Bloomberg consensus full-year forecasts, below expectations.
Frencken’s 9M2024 revenue and patmi accounted for 75.4% and 67.7% of OIR’s Tan’s forecast, respectively.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
Frencken’s management expects 2HFY2024 revenue to be higher than 1HFY2024 revenue of $372 million, with semiconductor revenue expected to be higher in 2HFY2024.
DBS’s Ling notes that semiconductor revenue is expected to grow 18.8% y-o-y in 2024, with another 13.8% increase in 2025, according to Gartner.
DBS’s Ling expects the rebound in the semiconductor segment to be accompanied by wafer shipments reaching new highs and increases in demand for silicon, which would support artificial intelligence (AI), high performance computing (HPC), 5G, automotive and various industrial applications.
“However, we believe the much-anticipated ramp up in orders will now likely only come in 2QFY2025 to 3QFY2025 as we do not see any signs of incoming ramp up yet from our channel checks,” Maybank’s Seet says.
This is supported by OIR’s Tan who notes that although 3QFY2024 results are “mildly positive”, the supply chain and key customer and guidance from management suggests that anticipated growth in the semiconductor business is likely to materialise in late 2HFY2025.
Furthermore, potential trade restrictions between US and China are likely to impact global demand, although Maybank’s Seet believes the long-term growth story is intact.
While life sciences and medical segments performed well during Covid-19, the segment is now showing signs of slowing down.
For more stories about where money flows, click here for Capital Section
In 3QFY2024, revenue from the medical segment contracted 4.3% y-o-y to $29.8 million while life sciences increased 4.2% y-o-y to $44.7 million.
Maybank’s Seet acknowledges that while there is room for growth, it will be “slower than earlier anticipated”.
Similarly, OIR’s Tan notes that the steady growth in this sector has “stalled”, with uneven demand growth for various products within those segments.
Looking ahead, DBS’s Ling has an optimistic 2HFY2024 outlook supported by various programmes.
Furthermore, while Frencken has enhanced its capacity utilisation rate, it has not been optimised yet and has adequate capacity to cater to increasing demand given its expansion plans in Malaysia, in particular.
RHB’s Alfie Yeo remains positive on outlook as Frencken is opening a larger facility in the US to support semiconductor customers in 1QFY2025, while in the analytical and life sciences division, sales are supported by new product introductions, and steady orders to a key customer in Europe.
“Both Gartner and SEMI have also forecasted firm growth in 2025 for revenue, and the 300mm fab equipment market in the semiconductor sector,” Yeo adds.
Maybank’s Seet is of the opinion that Frencken remains a key beneficiary of the semiconductor industry recovery, with Frencken’s net profit after tax (NPAT) is poised to grow strongly in the next few years.
Maybank’s Seet reduces his FY2024/FY2025 patmi by 12% and 7% respectively.
Similarly, DBS’s Ling trims her earnings projections for FY2024 and FY2025 by 16% and 17%, respectively on “slower-than-expected” recovery.
As at 2.39pm, shares in Frencken are trading 3 cents lower or 2.42% down at $1.21.
