Analyst Jarick Seet of Maybank Securities is keeping “buy” on Frencken Group E28 at an unchanged target price of $1.77.
In his May 27 note, Seet writes that the company will be a “key beneficiary” from its strategic partnership with semiconductor (semicon) manufacturer, Applied Materials (AMAT) in the coming years.
The analyst is also encouraged by the American company's positive outlook in its recent 2QFY2024 results and its plans to open a new $600 million facility in Singapore.
“We also believe the ramp-up of some of these existing new product introductions (NPIs) should start by FY2025 which could potentially see Frencken’s growth leapfrog going forward. In our view, it is the best proxy for a semicon recovery even for FY2024 and remains our top pick in the Singapore tech sector,” writes Seet.
Due to higher sales from its key customer in Europe and improving sales from Asia, Frencken’s semicon segment “did well” in its 1QFY2024 ended March results, with management expecting a gradual recovery in the full FY2024 for the segment from its various NPIs in progress in Europe and Asia.
Seet highlights that the company has also relocated its US operations to a larger facility and expanded its motor business, supporting semicon equipment customers.
He adds: “It is also working with a US front-end equipment customer to expand its range of programmes, which is likely to translate to higher revenue in the future.”
On his outlook, Seet is bullish, noting that certain NPIs are “slated to” ramp up in the FY2025, and he expects 2QFY2024 to perform better than 1QFY2024, while subsequent quarters in 2HFY2024 to be stronger q-o-q, mainly due to new NPIs, in Frencken’s semicon, automotive, life science and medical segments.
“Margins should also continue to pick up due to higher operating leverage. Southeast Asia utilisation has picked up to 60% to 70% from above 50% in 3QFY2023, which is highly encouraging and should point to a stronger 2QFY2024 y-o-y,” highlights Seet.
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Upside factors noted by him include stronger-than-expected semicon and industrial automation contributions, robust margin accretion from new products and improving efficiencies, as well as improving institutional interest, which could help the stock re-rate towards peers’ valuations.
Conversely, downsides include a drop in demand, supply chain disruptions that could impede production ability and revenue recognition, and lastly, a lower-than-expected dividend pay-out.
As at 3.03 pm, shares in Frencken are trading at one cent lower or 0.67% down at $1.49.
