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Analysts divided on Frencken as it misses 3Q21 estimates

Jovi Ho
Jovi Ho • 3 min read
Analysts divided on Frencken as it misses 3Q21 estimates
“We have a bullish view on the equipment makers of the semiconductor sector."
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Frencken is still a good proxy for the strong semiconductor cycle, says RHB Group Research analyst Jarick Seet in a glowing note on Nov 15.

Frencken is a global integrated technology solutions company that serves multinational companies in the automotive, healthcare, industrial, life sciences and semiconductor industries.

“We believe FY2021 will be a strong year for Frencken as both its semiconductor and medical divisions should boost profits. We believe there is also further room for Frencken’s share price to grow, as its peers are trading at higher valuations. We are also positive over its long-term prospects and its able management team,” writes Seet.

Seet is maintaining “buy” on Frencken with a raised target price of $2.64 from $2.55 previously. The new target price represents an upside of 8.2%.

Frencken reported a lower-than-expected 3QFY2021 with revenue and PATMI growing 18.7% and 10.7% y-o-y, driven by strong semiconductor, analytical, and medical segments but offset by softer industrial automation and automotive segments.

“We have a bullish view on the equipment makers of the semiconductor sector and regard Frencken as a major proxy to the growth of listed semiconductor players locally,” writes Seet.

See also: Japan Foods sinks into $0.5 mil net loss for FY2024

Frencken is also growing a new segment in the aerospace sector. Avimac is managed by a highly skilled team that has accumulated experience of over 40 years, serving major players in the global aerospace sector.

See: Frencken Group acquires high-precision manufacturing solutions provider Avimac for $14 mil

See also: Semiconductor segment outperformance will continue: RHB

See also: Stamford Land FY2024 earnings shrink 96.1% y-o-y on absence of divestment gains

As a supplier to ETLA, a subsidiary of Frencken prior to the acquisition, Avimac has supported Frencken’s needs in various manufacturing programs. “This acquisition should open a pathway for Frencken to access new technologies and potentially build a new business pillar in the aerospace industry. In addition, the acquisition of Avimar could be a springboard to penetrate the commercial aerospace engineering industry, given its established customer base, certified manufacturing facilities, and forthcoming programs,” writes Seet.

Meanwhile, CGS-CIMB Research William Tng is more measured in his Nov 12 note on Frencken, downgrading the company to “hold” from “add” and cutting target price to $2.44 from $2.49 previously.

Frencken’s 3QFY2021 revenue was at 25% of Tng’s full-year forecast, in line with its three-year historical average of 26%. 3QFY2021 net profit of $14.8 million, however, was slightly below, at 23% of Tng’s forecasts, compared to the past three-year average of 26%.

“We note that net profit margin fell q-o-q to 7.5% in 3QFY2021 compared to 8.6% in 2QFY2021. We think this was due to cost sharing with customers arising from the higher raw material costs and freight costs as well as constraints on its workforce with the Covid-19 related movement control order in Malaysia during 3QFY2021,” writes Tng.

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Frencken guides that 2HFY2021F revenue should remain stable compared to 1HFY2021, notes Tng. “Other than the ongoing supply chain challenges, we note that a manufacturing supplier in the semiconductor industry that supplies to ASML Holdings was affected by a cyberattack in October, resulting in further supply chain disruptions.”

“We think there will be some trickle-down impact on Frencken, which could affect its 4QFY2021F performance. We cut FY2021F revenue and net profit by 2.9% and 6.1%, respectively, and expect 4QFY2021F net profit to decline 4% q-o-q,” Tng adds.

As at 4.44pm, shares in Frencken are trading 8 cents lower, or 3.28% down, at $2.36.

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