Frencken Group Ltd: Navigating Tariffs and Maintaining Growth in a Shifting Global Landscape
CGS International
April 22, 2025
Frencken Group Ltd: Navigating Tariffs and Maintaining Growth in a Shifting Global Landscape
Frencken Group Ltd: Maintaining 1H25F Revenue Outlook
- Frencken Group hosted ISDN at the Value Up Conference in Singapore last Wednesday. [[1]]
- Approximately 9% of Frencken’s sales are exported to the US from its Singapore facilities. [[1]]
- Customers are bearing the bulk of the tariff costs. [[1]]
- CGS International reiterates an Add rating but lowers the target price (TP) to S\$1.15. [[1]]
- Valuation could de-rate to -1 standard deviation below its 5-year average P/E, factoring in tariff-induced uncertainties. [[1]]
Monitoring the Tariff Situation
- 9% of Frencken Group’s sales are shipped from Singapore and are potentially subject to a 10% tariff. [[1]]
- Minimal export sales occur from Frencken’s China factories into the US. [[1]]
- The remaining 91% of sales are for locally based customers or non-US destinations. [[1]]
- Frencken’s customers are currently bearing most of the tariffs. [[1]]
- Frencken has maintained its 1H25F revenue outlook, projecting stability compared to 2H24 (S\$421.6m). [[1]]
1H25F Segmental Revenue Performance
- Management anticipates higher revenue for the semiconductor segment. [[1]]
- Stable half-on-half (hoh) performance is expected for medical, analytical & life sciences, automotive, and industrial automation segments. [[1]]
- Frencken’s automotive segment (8% of FY24 revenue) could face more challenging conditions due to higher costs amid the evolving tariff situation. [[1]]
- Frencken has a manufacturing facility in Spokane in the US, with capacity expanded four-fold in FY24, to support its US customers. [[1]]
- Higher import costs, if any, will be passed on to customers after discussion. [[1]]
Investment Plan
- Frencken plans to build a new plant in Singapore to support its key semicon customer. [[1]]
- The potential capital expenditure (capex) for the new plant could range between S\$40m-60m, with a decision expected within FY26F. [[1]]
Reiterate Add Call
- CGS International reiterates its Add call on Frencken, remaining positive on the outlook for its key semicon segment. [[1]]
- This segment is expected to drive FY25-27F core EPS growth. [[1]]
- Frencken’s valuation is likely to de-rate to 11.1x (-1 standard deviation below its average 5-year P/E) due to concerns over the tariff situation. [[1]]
- The target price is lowered to S\$1.15. [[1]]
- Previously, Frencken was valued at 13.5x the FY26F forecast EPS (5-year average P/E multiple). [[1]]
Potential Re-Rating Catalysts
- Faster recovery in its semicon business segment driven by new end-consumer products. [[1]]
- Better cost controls. [[1]]
- Greater concessions from customers on cost pass-throughs. [[1]]
Downside Risks
- Further cost escalation affecting its net profit negatively. [[1]]
- Further weakening in demand for its semicon business segment. [[1]]
Stock Details
- Current Price: S\$0.965 [[1]]
- Target Price: S\$1.15 [[1]]
- Previous Target: S\$1.40 [[1]]
- Up/downside: 19.5% [[1]]
- CGSI / Consensus: -15.9% [[1]]
- Reuters: FREN.SI [[1]]
- Bloomberg: FRKN SP [[1]]
- Market cap: US\$316.4m / S\$412.1m [[1]]
- Average daily turnover: US\$1.84m / S\$2.47m [[1]]
- Current shares o/s: 427.0m [[1]]
- Free float: 75.4% [[1]]
Key Changes in This Note
- No changes were made in this note. [[1]]
Price Performance
- 1M Absolute: -11.5% [[1]]
- 3M Absolute: -13.8% [[1]]
- 12M Absolute: -36.1% [[1]]
- 1M Relative: -6.7% [[1]]
- 3M Relative: -13.5% [[1]]
- 12M Relative: -65.0% [[1]]
Major Shareholders
- Micro compact Sdn Bhd: 6.2% [[1]]
- Precico Singapore Pte Ltd: 6.1% [[1]]
- Sinn Hin Company Sdn Bhd: 4.9% [[1]]
Financial Summary
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Revenue |
742.9 |
794.3 |
830.0 |
874.1 |
918.9 |
| Net Profit |
32.47 |
37.12 |
41.91 |
44.38 |
47.82 |
| Core EPS (S\$) |
0.08 |
0.09 |
0.10 |
0.10 |
0.11 |
| Core EPS Growth |
(37.4%) |
14.3% |
12.9% |
5.9% |
7.8% |
| FD Core P/E (x) |
12.59 |
11.01 |
9.75 |
9.21 |
8.55 |
| Price To Sales (x) |
0.55 |
0.51 |
0.49 |
0.47 |
0.44 |
| DPS (S\$) |
0.023 |
0.026 |
0.029 |
0.031 |
0.034 |
| Dividend Yield |
2.36% |
2.70% |
3.05% |
3.23% |
3.48% |
| EV/EBITDA (x) |
5.53 |
4.56 |
2.75 |
2.33 |
1.87 |
| P/FCFE (x) |
559.1 |
13.1 |
3.4 |
10.8 |
10.2 |
| Net Gearing |
(12.5%) |
(16.6%) |
(39.0%) |
(41.5%) |
(44.2%) |
| P/BV (x) |
1.02 |
0.94 |
0.88 |
0.83 |
0.77 |
| ROE |
8.19% |
8.89% |
9.34% |
9.27% |
9.36% |
| EPS/Consensus EPS (x) |
1.01 |
0.97 |
0.92 |
|
|
Frencken’s Revenue Guidance
- Frencken maintained its guidance that 1H25F revenue is expected to be higher compared to 2H24. [[2]]
Production Capacity by Location
Approximated based on properties owned by Frencken as at end-Dec 2024. [[2]]
- Netherlands: 23,600 sq m (32%) [[2]]
- Malaysia: 32,050 sq m (44%) [[2]]
- Selangor: 23,281 sq m [[2]]
- Penang: 4,466 sq m [[2]]
- Johor: 4,303 sq m [[2]]
- Thailand: 9,600 sq m (13%) [[2]]
- China, Chuzhou: 7,973 sq m (11%) [[2]]
- Total: 73,223 sq m (100%) [[2]]
Peer Comparison
Data as at 22 Apr 2025. [[2]]
| Company |
Ticker |
Recom. |
Price (lcl curr) |
Target Price (lcl curr) |
Market Cap (US\$ m) |
P/E (x) CY25F |
P/E (x) CY26F |
3-year EPS CAGR (%) |
P/BV (x) CY25F |
Recurring ROE (%) CY25F |
Dividend Yield (%) CY25F |
| Frencken Group Ltd |
FRKN SP |
ADD |
0.97 |
1.15 |
316 |
9.8 |
9.2 |
9.5% |
0.88 |
9.2% |
3.1% |
| Benchmark Electronics Inc |
BHE US |
NR |
34.76 |
NA |
1,255 |
14.5 |
12.8 |
na |
1.10 |
7.8% |
na |
| Celestica Inc |
CLS US |
NR |
80.59 |
NA |
9,364 |
16.6 |
13.7 |
24.6% |
4.21 |
25.1% |
na |
| Flex Ltd |
FLEX US |
NR |
30.53 |
NA |
11,696 |
11.0 |
9.6 |
-31.8% |
2.31 |
22.5% |
na |
| Malaysian Pacific Industries |
MPI MK |
Reduce |
15.10 |
19.50 |
689 |
20.7 |
16.6 |
na |
1.44 |
7.0% |
2.5% |
| SAM Engineering & Equipment |
SEQB MK |
Hold |
3.11 |
3.71 |
482 |
18.0 |
14.3 |
na |
1.37 |
7.8% |
0.8% |
| Sanmina Corp |
SANM US |
NR |
73.06 |
NA |
3,969 |
12.6 |
na |
na |
1.68 |
14.2% |
na |
| Unisem |
UNI MK |
Reduce |
1.85 |
1.40 |
683 |
26.6 |
19.6 |
52.9% |
1.32 |
5.0% |
3.2% |
| UWC BHD |
UWC MK |
NR |
1.70 |
NA |
421 |
24.3 |
17.1 |
27.2% |
3.48 |
15.3% |
0.8% |
ESG in a Nutshell
- Frencken Group provides original design, original equipment, and diversified integrated manufacturing solutions. [[3]]
- They serve customers in the automotive, healthcare, industrial, analytical & life sciences, and semiconductor industries. [[3]]
- Frencken believes a solid governance structure is essential for long-term prosperity. [[3]]
Customer Concentration Risk
- Frencken faces customer concentration risk with three key customers accounting for approximately 52.6% of its FY24 group revenue (FY23: c.49.4%). [[3]]
- This risk is offset by exposure to other business segments and efforts to recruit new customers. [[3]]
ESG Highlights
- Frencken introduced the ESG (FSL) Dashboard to collate data from all operating sites for extensive analysis. [[3]]
- Frencken has improved on its ESG pillars since the launch of FSL. [[3]]
- Its internal assessment of its E score improved from 76% in FY23 to 67% in FY24. [[3]]
- A lower percentage is a positive indicator, measuring the downward movement in consumption of natural resources and emission discharges. [[3]]
- Its S score improved from 71% in FY23 to 78% in FY24, and its G score improved from 71% to 82%. [[3]]
Trends in Occupational Safety and Health
- Frencken has established occupational safety and health (OSH) policies and a safety and health committee within its various entities. [[3]]
- The committee comprises representatives from executive and non-executive staff. [[3]]
- Frencken is developing better training tools and methods for stronger OSH in the workplace. [[3]]
- There were no workplace injuries in 2024, per its Annual Report. [[3]]
P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (rhs) [[4]]
12-mth Fwd FD Core P/E vs FD Core EPS Growth
12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs) [[4]]
Profit & Loss
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Total Net Revenues |
742.9 |
794.3 |
830.0 |
874.1 |
918.9 |
| Gross Profit |
128.1 |
146.2 |
154.2 |
161.7 |
169.6 |
| Operating EBITDA |
65.5 |
74.4 |
83.6 |
87.8 |
94.2 |
| Depreciation And Amortisation |
(30.1) |
(30.9) |
(31.8) |
(32.8) |
(33.8) |
| Operating EBIT |
35.4 |
43.6 |
51.8 |
55.0 |
60.4 |
| Financial Income/(Expense) |
(4.8) |
(5.5) |
(4.8) |
(4.8) |
(4.8) |
| Pretax Income/(Loss) from Assoc. |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Non-Operating Income/(Expense) |
10.9 |
8.0 |
5.7 |
5.0 |
3.0 |
| Profit Before Tax (pre-EI) |
41.5 |
46.0 |
52.7 |
55.2 |
58.6 |
| Exceptional Items |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Pre-tax Profit |
41.5 |
46.0 |
52.7 |
55.2 |
58.6 |
| Taxation |
(9.6) |
(9.4) |
(11.3) |
(11.3) |
(11.3) |
| Exceptional Income – post-tax |
|
|
|
|
|
| Profit After Tax |
32.0 |
36.6 |
41.4 |
43.9 |
47.3 |
| Minority Interests |
0.5 |
0.5 |
0.5 |
0.5 |
0.5 |
| Preferred Dividends |
|
|
|
|
|
| FX Gain/(Loss) – post tax |
|
|
|
|
|
| Other Adjustments – post-tax |
|
|
|
|
|
| Preference Dividends (Australia) |
|
|
|
|
|
| Net Profit |
32.5 |
37.1 |
41.9 |
44.4 |
47.8 |
| Recurring Net Profit |
32.5 |
37.1 |
41.9 |
44.4 |
47.8 |
| Fully Diluted Recurring Net Profit |
32.5 |
37.1 |
41.9 |
44.4 |
47.8 |
| Normalised Net Profit |
32.0 |
36.6 |
41.4 |
43.9 |
47.3 |
| Fully Diluted Normalised Profit |
32.5 |
37.1 |
41.9 |
44.4 |
47.8 |
Cash Flow
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| EBITDA |
65.50 |
74.41 |
83.63 |
87.78 |
94.23 |
| Cash Flow from Invt. & Assoc. |
|
|
|
|
|
| Change In Working Capital |
(8.74) |
(22.84) |
78.42 |
(10.18) |
(10.26) |
| (Incr)/Decr in Total Provisions |
|
|
|
|
|
| Other Non-Cash (Income)/Expense |
5.34 |
10.57 |
(11.12) |
(11.70) |
(15.70) |
| Other Operating Cashflow |
4.50 |
4.50 |
4.50 |
4.50 |
4.50 |
| Net Interest (Paid)/Received |
(4.80) |
(5.47) |
(4.80) |
(4.80) |
(4.80) |
| Tax Paid |
(12.83) |
(12.95) |
0.00 |
0.00 |
0.00 |
| Cashflow From Operations |
48.96 |
48.22 |
150.64 |
65.61 |
67.97 |
| Capex |
(26.85) |
(13.10) |
(30.00) |
(29.00) |
(29.00) |
| Disposals Of FAs/subsidiaries |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
| Acq. Of Subsidiaries/investments |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
| Other Investing Cashflow |
(1.08) |
1.98 |
1.20 |
1.20 |
1.20 |
| Cash Flow From Investing |
(27.93) |
(11.12) |
(28.80) |
(27.80) |
(27.80) |
| Debt Raised/(repaid) |
(20.31) |
(5.92) |
0.00 |
0.00 |
0.00 |
| Proceeds From Issue Of Shares |
0.00 |
0.06 |
0.00 |
0.00 |
0.00 |
| Shares Repurchased |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
| Dividends Paid |
(15.54) |
(9.74) |
(12.57) |
(13.31) |
(14.35) |
| Preferred Dividends |
|
|
|
|
|
| Other Financing Cashflow |
0.00 |
(0.02) |
0.00 |
0.00 |
0.00 |
| Cash Flow From Financing |
(35.85) |
(15.62) |
(12.57) |
(13.31) |
(14.35) |
| Total Cash Generated |
(14.81) |
21.48 |
109.26 |
24.49 |
25.82 |
| Free Cashflow To Equity |
0.73 |
31.18 |
121.84 |
37.81 |
40.17 |
| Free Cashflow To Firm |
27.05 |
43.96 |
127.84 |
43.81 |
46.17 |
Balance Sheet
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Total Cash And Equivalents |
142.6 |
159.2 |
268.5 |
293.0 |
320.7 |
| Total Debtors |
180.6 |
151.2 |
136.2 |
142.7 |
149.4 |
| Inventories |
203.4 |
226.5 |
182.2 |
191.9 |
201.7 |
| Total Other Current Assets |
1.8 |
3.0 |
3.0 |
3.0 |
3.0 |
| Total Current Assets |
528.5 |
539.8 |
589.9 |
630.6 |
674.7 |
| Fixed Assets |
180.4 |
168.6 |
166.8 |
163.0 |
158.2 |
| Total Investments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Intangible Assets |
21.3 |
22.0 |
21.8 |
21.5 |
21.3 |
| Total Other Non-Current Assets |
5.0 |
4.7 |
4.7 |
4.7 |
4.7 |
| Total Non-current Assets |
206.8 |
195.3 |
193.3 |
189.2 |
184.2 |
| Short-term Debt |
91.6 |
86.5 |
86.5 |
86.5 |
86.5 |
| Current Portion of Long-Term Debt |
|
|
|
|
|
| Total Creditors |
176.9 |
150.4 |
169.6 |
175.7 |
181.8 |
| Other Current Liabilities |
13.7 |
14.1 |
14.1 |
14.1 |
14.1 |
| Total Current Liabilities |
282.2 |
251.0 |
270.2 |
276.2 |
282.3 |
| Total Long-term Debt |
0.5 |
0.1 |
0.1 |
0.1 |
0.1 |
| Hybrid Debt – Debt Component |
|
|
|
|
|
| Total Other Non-Current Liabilities |
47.3 |
46.5 |
46.5 |
46.5 |
46.5 |
| Total Non-current Liabilities |
47.8 |
46.7 |
46.7 |
46.7 |
46.7 |
| Total Provisions |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Total Liabilities |
330.0 |
297.6 |
316.8 |
322.9 |
329.0 |
| Shareholders’ Equity |
401.2 |
434.0 |
463.3 |
494.4 |
527.8 |
| Minority Interests |
4.0 |
3.5 |
3.0 |
2.5 |
2.0 |
| Total Equity |
405.3 |
437.5 |
466.3 |
496.9 |
529.9 |
Key Ratios
|
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Revenue Growth |
(5.50%) |
6.93% |
4.49% |
5.32% |
5.13% |
| Operating EBITDA Growth |
(20.5%) |
13.6% |
12.4% |
5.0% |
7.3% |
| Operating EBITDA Margin |
8.8% |
9.4% |
10.1% |
10.0% |
10.3% |
| Net Cash Per Share (S\$) |
0.12 |
0.17 |
0.43 |
0.49 |
0.55 |
| BVPS (S\$) |
0.95 |
1.02 |
1.09 |
1.17 |
1.25 |
| Gross Interest Cover |
5.89 |
6.36 |
8.64 |
9.16 |
10.07 |
| Effective Tax Rate |
23.0% |
20.4% |
21.4% |
20.5% |
19.3% |
| Net Dividend Payout Ratio |
30.0% |
30.0% |
30.0% |
30.0% |
30.0% |
| Accounts Receivables Days |
72.33 |
71.18 |
57.29 |
52.64 |
52.68 |
| Inventory Days |
128.3 |
121.4 |
110.4 |
95.8 |
95.9 |
| Accounts Payables Days |
69.20 |
61.92 |
56.23 |
59.80 |
59.82 |
| ROIC (%) |
9.4% |
10.8% |
12.6% |
16.6% |
17.9% |
| ROCE (%) |
7.3% |
8.8% |
9.8% |
9.9% |
10.3% |
| Return On Average Assets |
5.04% |
5.73% |
6.09% |
6.07% |
6.21% |
Key Drivers
|
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Industrial automation revenue (S\$m) |
29.0 |
29.7 |
– |
41.9 |
46.2 |
| Semiconductor revenue (S\$m) |
365.5 |
402.0 |
– |
26.4 |
24.3 |
Recommendation Framework
- Add: The stock’s total return is expected to exceed 10% over the next 12 months. [[10]]
- Hold: The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. [[10]]
- Reduce: The stock’s total return is expected to fall below 0% or more over the next 12 months. [[10]]
Sector Ratings Definition
- Overweight: Stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. [[10]]
- Neutral: Stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. [[10]]
- Underweight: Stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation. [[10]]
Country Ratings Definition
- Overweight: Investors should be positioned with an above-market weight in this country relative to benchmark. [[10]]
- Neutral: Investors should be positioned with a neutral weight in this country relative to benchmark. [[10]]
- Underweight: Investors should be positioned with a below-market weight in this country relative to benchmark. [[10]]
Rating Distribution
|
Rating Distribution (%) |
Investment Banking clients (%) |
| Add |
71.0% |
1.3% |
| Hold |
20.9% |
0.7% |
| Reduce |
8.2% |
0.4% |
Distribution of stock ratings and investment banking clients for quarter ended on 31 March 2025
551 companies under coverage for quarter ended on 31 March 2025 [[10]]
