Maybank Securities analyst Jarick Seet has upgraded Frencken Group to “buy” from “sell” previously on bullish customer outlook.
In his Jan 25 report, Seet explains that Frencken’s largest semiconductor customer ASML Holding reported a strong 4QFY2022, with revenue rising 29% y-o-y to EUR6.43 billion ($9.18 billion) and a record backlog of EUR40.4 billion at the end of 2022.
ASML expects 2023 revenue to grow a further 25% y-o-y. Its CEO had also guided its customers to expect the market to rebound in 2HFY2023, while demand remains strong for its systems due to lengthy order lead times and the strategic nature of lithography investments.
“This will be a positive for Frencken’s semicon segment and points to further growth for Frencken in FY2023,” says Seet.
The company should also benefit from the significant decline in electricity and gas prices since November last year, Seet points out. Additionally, Frencken has passed on the increase in costs to customers with new orders and should see its margins recover in subsequent quarters.
The company’s new orders secured in the medical, analytical, life sciences and the semicon segment as well as recovery in margins should further help drive its growth in FY2023.
See also: RHB maintains 'buy' on Raffles Medical Group following strong revenue and China's reopening
“We feel the worst is over for Frencken,” he adds.
With these, Maybank has increased its FY2023-FY2024 PATMI forecasts by 11.7% and 12.9%, which in turn boosts its target price to $1.21 from $1.02 previously. This is based on a higher 9x FY2023 P/E as global tech valuations pricked up in the last two months.
As at 11.08am, shares in Frencken are trading 1 cent lower or 0.87% down at $1.14.