Frencken Group

Frencken Group Ltd: Delayed Semi-Conductor Ramp-Up, Positive 2H24 Outlook

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Frencken Group Ltd remains a top pick in Singapore’s tech sector despite the anticipated delay in the semiconductor industry’s order ramp-up to 2Q/3Q 2025. Analysts at Maybank IBG Research maintain a “BUY” recommendation, adjusting the price target from SGD 1.77 to SGD 1.54 due to reduced near-term expectations. Frencken’s revised FY24/25 earnings forecast has been lowered by 15%/18% as slower-than-expected growth in the life sciences sector impacts profitability.

2H24 Outlook and Ramp-Up Delay: Frencken’s second half of 2024 is expected to be stronger than the first, with management forecasting higher revenues, driven in part by improved margins in the semiconductor sector. However, the much-anticipated significant growth in semiconductor orders is now forecasted to occur later, with ramp-ups likely starting only in the second or third quarter of 2025. Current channel checks indicate no signs of imminent acceleration in orders, leading to tempered near-term growth expectations.

Frencken Group Ltd: Positive 2H24 Outlook

Life Sciences Growth Slows: After performing well during the COVID-19 pandemic, Frencken’s life sciences segment is now showing signs of slowing growth. While there is still potential for expansion, it will likely be at a slower pace than initially anticipated.

Strong Financial Position: Despite these challenges, Frencken remains well-positioned. Its strong cash flow and net cash balance sheet provide resilience, and the company continues to benefit from diversified revenue streams, including industrial automation, automotive, and medical sectors. Furthermore, Frencken’s gross margins improved from 12.3% in 1H23 to 14.8% in 1H24, with net margins also rising from 1.5% to 4.8% over the same period.

Valuation and Stock Outlook: Frencken is expected to benefit from the semiconductor recovery, despite the delay. It maintains a SGD 541.2 million market capitalization and trades at a P/E ratio of 12.8x for FY24E, with analysts predicting core earnings growth of 31.1% in FY24 and 15.8% in FY25. Despite these adjustments, the stock offers a 25% upside potential, with a 12-month price target of SGD 1.54, reinforcing its status as a top pick within the sector.

Challenges Ahead: The company’s success hinges on factors such as potential demand fluctuations, ongoing supply chain challenges, and slower-than-expected growth in critical sectors like life sciences.

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