Frencken Group Ltd: A Comprehensive Analysis by Maybank Research Pte Ltd
Date: November 20, 2024
Broker: Maybank Research Pte Ltd
Introduction
Maybank Research Pte Ltd has released an insightful analysis of Frencken Group Ltd, offering a detailed view of the company’s performance, strategic outlook, and financial metrics. Frencken Group Ltd, a technology hardware manufacturer, is renowned for its specialization in complex components and high-mix, low-volume, high-complexity manufacturing in the mechatronics segment. This report delves into various aspects of the company’s operations, financial health, and market positioning.
Frencken Group Ltd: Market Performance and Strategic Outlook
Frencken Group Ltd has maintained its position as a top pick in the Singapore tech sector despite experiencing a slower recovery. The company reported a 3Q24 revenue of SGD198.6 million and a PATMI of SGD9.2 million, which marked a 7.7% increase QoQ and a 29.3% rise YoY. However, these figures were below consensus and Maybank’s estimates, prompting a reduction in FY24/25E PATMI by 12%/7%, respectively, and a lower target price of SGD1.50, pegged to 14x FY25E P/E.
Semi-Conductor Segment
The much-anticipated ramp-up in the semi-conductor orders has been delayed, with expectations now set for 2-3Q25. Despite potential trade restrictions between the US and China affecting global demand, the long-term growth story remains intact. Management anticipates that 2H24 revenue will exceed 1H24’s SGD372 million, driven by a higher semi-conductor revenue in the latter half of 2024.
Life Sciences and Medical Segments
The life sciences and medical segments, which thrived during the COVID-19 pandemic, are showing signs of deceleration. In 3Q24, the medical segment’s revenue contracted by 4.3% YoY to SGD29.8 million, while life sciences revenue increased by 4.2% YoY to SGD44.7 million. Despite this slowdown, there is still potential for growth, albeit at a slower pace than previously anticipated.
Financial Metrics and Analysis
Frencken Group Ltd is poised for growth over the medium term, driven by revenue expansion and margin optimization through new products and improved efficiencies. The company boasts a net cash balance sheet and strong cash flow, providing resilience amidst economic uncertainties. Historically, Frencken has distributed 30% of its earnings as dividends, a trend expected to continue.
Key Financial Metrics
- Revenue: Expected to grow from SGD780 million in FY24E to SGD987 million in FY26E.
- EBITDA: Projected to rise from SGD80 million in FY24E to SGD110 million in FY26E.
- Core Net Profit: Anticipated to increase from SGD37 million in FY24E to SGD59 million in FY26E.
- Dividend Yield: Forecasted to improve from 2.2% in FY24E to 3.5% in FY26E.
Environmental, Social, and Governance (ESG) Considerations
Frencken Group Ltd faces inherent risks related to environmental, workplace safety, and conflict of interest due to its involvement in the electronics and automotive manufacturing supply chains. However, the company adheres to best practices and has not faced any fines or sanctions related to environmental or socioeconomic laws. The Eco-PVD offering represents a more environmentally friendly approach for automotive coating, and Frencken is optimistic about its long-term prospects.
Key ESG Metrics
- Board Composition: Six directors, with one executive director and four independent directors.
- Employee Safety: Maintained an injury rate of 0% in 2021.
- Gender Diversity: Female employees make up 34% of the workforce.
Conclusion
Despite some challenges and a slower-than-expected recovery, Frencken Group Ltd remains a strong contender in the Singapore tech sector. With strategic initiatives aimed at leveraging customer relationships and introducing value-added products, the company is well-positioned for future growth. The financial outlook remains promising, supported by a robust balance sheet and a commitment to maintaining shareholder value through consistent dividend payouts.
