Date: 15 October 2024
Broker Name: UOB Kay Hian Private Limited
Company Overview
Frencken Group is a global integrated technology solutions company providing ODM (Original Design Manufacturer) and OEM (Original Equipment Manufacturer) services across multiple industries. These include the automobile, healthcare, industrial automation, analytical life sciences, and semiconductor sectors. Frencken’s diversified business model allows it to share its core competencies across segments, catering to multinational companies who are leaders in their respective fields.
Stock Data
- Bloomberg Ticker: FRKN SP
- Shares Issued: 427.1 million
- Market Cap: RM 542.4 million / US$415.3 million
- 3-Month Avg. Daily Turnover: US$4.7 million
- 52-Week High/Low: S$1.74/S$1.04
- Major Shareholder: Dato’ Gooi Soon Chai (23.7%)
- FY24 NAV/Share: S$1.02
- FY24 Net Cash/Share: S$0.21
Key Segments Overview
Frencken operates across several high-technology industries and continues to leverage its core competencies to support its customers. Below are the primary sectors in which Frencken operates:
- Semiconductor: Frencken has evolved from supplying components to providing entire fab processing systems. The semiconductor sector shows positive recovery signs, though the demand remains uneven.
- Analytical Life Sciences: Frencken sees long-term growth potential, but recovery has been slower due to weaker-than-expected demand from major customers.
- Automobile: The automobile segment’s recovery may be slower due to uncertainties about customer preferences between electric vehicles and traditional platforms.
- Industrial Automation: This segment is expected to maintain stable performance from a low base, in line with customer guidance.
- Healthcare: Frencken’s healthcare segment is also expected to continue its stable performance.
Key Financials (Year to 31 Dec)
-
Net Turnover (S$m):
- 2022: 786
- 2023: 743
- 2024F: 807
- 2025F: 850
- 2026F: 895
-
EBITDA (S$m):
- 2022: 82
- 2023: 65
- 2024F: 79
- 2025F: 84
- 2026F: 89
-
Net Profit (S$m):
- 2022: 52
- 2023: 32
- 2024F: 44
- 2025F: 48
- 2026F: 51
-
EPS (S$ Cent):
- 2022: 12.1
- 2023: 7.6
- 2024F: 10.3
- 2025F: 11.2
- 2026F: 11.9
-
P/E Ratio:
- 2022: 10.5x
- 2023: 16.7x
- 2024F: 12.4x
- 2025F: 11.3x
- 2026F: 10.7x
-
Net Cash/Share (S$):
- 2023: 0.21
- 2024F: 0.21
- 2025F: 0.21
- 2026F: 0.21
Recent Performance and Outlook
Frencken’s diversified business has allowed it to remain resilient despite headwinds in the global technology and automobile markets. The company expects a gradual recovery across its major segments, particularly in semiconductors and analytical life sciences, though the pace of recovery is uneven due to market uncertainties.
- Semiconductors: Frencken continues to benefit from demand in the semiconductor segment, with expectations of more meaningful recovery in the second half of 2025.
- Automobile: Major customers are still deciding whether to focus on electric vehicles or traditional platforms, which may delay the ramp-up in this segment.
- Healthcare and Industrial Automation: Both sectors are expected to remain stable, with Frencken benefitting from long-term relationships with multinational clients.
Valuation and Recommendation
UOB Kay Hian maintains its BUY rating for Frencken Group with a target price of S$1.74. This valuation is based on a 17.0x FY2024 PE ratio, which represents a +2 standard deviation above the mean. The higher multiple accounts for Frencken’s exposure to the recovery in the semiconductor cycle and potential growth from new electric vehicle programmes.
Risks
Frencken faces potential risks related to fluctuations in demand across its key segments, especially in semiconductors and automotive markets. Additionally, a slower-than-expected recovery in customer orders or delays in the ramp-up of new automotive programmes could negatively impact growth.
Share Price Catalysts
Key drivers for Frencken’s share price could include higher-than-expected factory utilization rates and better cost management, which could lead to improved profitability and earnings quality. Furthermore, continued growth in the semiconductor and electric vehicle sectors could act as long-term tailwinds for the company.
