SINGAPORE (Apr 15): DBS Group Research is starting Frencken at ‘buy’ with 75 cents target price on business diversification, technology advancement and attractive valuations.
Frencken has a global customer base and operates five key segments - Automotive, Analytical & Life Science, Medical, Semiconductor and Industrial & Industrial Automation. Its design and manufacturing sites are located close to customers and span across three regions – the United States, Europe and Asia, in 16 locations.
The group offers end-to-end solutions across the entire customer value chain - from product conceptualisation, integrated design, prototyping and new product introductions, to supply chain design and management, state-of-the-art value and volume manufacturing and logistics services.
In a Monday report, DBS analyst Ling Lee Keng says key drivers for Frencken includes data analytics and Internet of Things (IoT), as well as the transformation of the Automotive industry and advances in the Analytical and Medical segments.
At 7.1x FY19F and 6.5x FY20F earnings, Frencken is trading at about 40% discount to peers’ average of 12x PE, which is too steep, in Ling’s view. Furthermore, the stock is supported by a dividend yield of about 4% to 5%, based on a 30% payout ratio.
“We believe a target valuation of 8.5x PE based on blended FY19F and F20F earnings is fair, pegged to a 20% discount to peer average, given its smaller scale. This valuation peg also coincides with its +1SD PE band. Accordingly, we derive a target price of $0.75 per share, which translates to an upside of 25% from the current price,” says Ling.
As at 11.57am, shares in Frencken are up 2 cents to 62 cents.
