Frencken Group Ltd Deep Dive: Growth in Semiconductors and Robust Financial Performance

Broker: CGS International Securities Singapore Pte. Ltd.
Date of Report: February 28, 2025

Executive Summary

The comprehensive research report by CGS International Securities Singapore Pte. Ltd. provides a detailed analysis of Frencken Group Ltd with a clear focus on its strong semiconductor outlook. The report underscores the company’s steady revenue increase, robust earnings performance, and strategic initiatives in expanding its production base. Alongside a deep dive into Frencken Group Ltd, the analysis also covers key peer competitors, presenting a holistic overview of the market landscape for online financial readers and investors.

Deep Dive Into Frencken Group Ltd

The report reinforces a positive view on Frencken Group Ltd. With FY24 revenue recorded at S\$794.3 million – a 6.9% year‐on‐year increase – and a net profit of S\$37.1 million that was within expectations, the company remains on track to deliver steady growth. The semicon segment, which contributed to 46% of FY24 revenue and posted a strong 29.4% growth to S\$365.5 million, has driven improved margins. Gross margins expanded to 14.5% from 13.2% in the prior year owing to this segment’s profitability.

Financial Performance & Key Drivers

Key financial highlights include:

• FY24 revenue of S\$794.3 million, in line with consensus forecasts.
• FY24 net profit of S\$37.1 million, supported by better-than-expected semicon performance and additional one-off items such as government grants, scrap sales, one-off project income, and a revaluation gain on financial assets.
• Improved gross margins reaching 14.5% compared to 13.2% in FY23.
• A final dividend payout (DPS) of 2.61 Scts, consistent with historical payout ratios of 30%.

The strong earnings performance is attributed to better demand from key semicon customers and an emphasis on capturing higher-margin products. Additionally, the management’s efforts to control costs and secure concessions on cost pass-throughs have contributed to maintaining competitive margins.

Management Guidance & Future Growth Initiatives

Looking ahead, management expects 1H25 revenue to remain comparable to 2H24, with an anticipated boost in the semiconductor segment. The company is planning to build a new plant in Singapore. Designed to cater to new and expanded programmes, this facility is expected to support key semicon customers with an estimated capex requirement of S\$40 million to S\$60 million. The final decision on this investment is projected for FY26.

Even though the FY26 net profit forecast has been reduced by 14.2% due to higher operating expenses from an expanded production base in the Netherlands and the US, core EPS growth for FY25-27 remains supported by the robust semiconductor business. Consequently, the target price has been slightly raised to S\$1.40 on a 5-year average P/E basis.

Segment Analysis & Market Positioning

The company operates across several business segments, with the semiconductor segment being the clear growth driver, accounting for nearly half of its revenue in FY24. The report further illustrates revenue expectations across other segments:

• Semiconductor: Expected to register higher revenue in 1H25 compared to 2H24, buoyed by strong demand.
• Medical: Forecasted to remain stable.
• Analytical & Life Sciences: Revenue expected to be stable.
• Industrial Automation: Projected to continue its stable performance.
• Automotive: Anticipated to maintain consistent revenue figures.

The detailed segmental insights in the report highlight how the growth in the semiconductor segment is pivotal, while stability is maintained across other segments, ensuring diversified revenue streams.

Peer Comparison & Competitor Analysis

The report includes a comprehensive peer comparison, benchmarking Frencken Group Ltd against several notable global and regional players. Key competitors include:

• Benchmark Electronics Inc: An international player with a market cap of US\$1,455 million and a three-year EPS growth of 16.8%.
• Celestica Inc: With a substantial market cap of US\$13,018 million and 3-year EPS growth of 23.2%, Celestica remains a strong competitor.
• Flex Ltd: Noted for its competitive pricing and global reach, Flex Ltd has a market cap of US\$15,232 million and a 3-year EPS growth of 14.2%.
• Malaysian Pacific Industries: Covered under a Reduce call with a target price range, possessing a market cap of US\$825 million and EPS projections showing a 25.2% core growth with a notable dividend yield.
• SAM Engineering & Equipment: Maintains a stable outlook with a Hold recommendation.
• Sanmina Corp: With a respectable market cap of US\$4,579 million, Sanmina is also tracked in the analysis.
• Unisem: Rated under Reduce, the company’s outlook indicates potential challenges.
• UWC BHD: Comparatively maintained stability with an emphasis on dividend yield.

Among these, Frencken Group Ltd stands out with an “Add” rating, reflecting confidence in its semiconductor segment and financial robustness despite trade uncertainties and cost escalation risks.

ESG Initiatives and Corporate Governance

Frencken Group Ltd has demonstrated a strong commitment to environmental, social, and governance (ESG) standards. The company follows a stringent Code of Corporate Governance as set out by the Monetary Authority of Singapore. Initiatives include:

• The implementation of an ESG Dashboard to collate data across operating sites.
• Achieving 74% of its ESG targets as per its FY23 Annual Report, with ongoing efforts to improve on the remaining 26%.
• Focusing on occupational safety and health (OSH) by establishing rigorous safety policies and forming an OSH committee comprising representatives from across the organizational hierarchy. Notably, there were no workplace injuries reported in 2023.

These measures underscore the company’s dedication to sustainable development and risk mitigation associated with customer concentration and operational safety.

By The Numbers: Financial Highlights

The report provides extensive financial metrics, offering insights on revenue, net profit, operating margins, EPS growth, and cash flow dynamics. Some key figures are:

• Revenue Growth: The forecast shows steady year-on-year growth from FY24 to FY27, ranging from approximately 4.5% to 7.0% annually.
• Net Profit: Increasing from S\$32.5 million in Dec-23A to S\$47.8 million by FY27F.
• Core EPS: From S\$0.08 in FY23A to S\$0.11 by FY27F, highlighting consistent upward momentum.
• Margins: Operating EBITDA margins are expected to improve marginally, while net interest cover and ROE metrics signal a healthy operating environment.
• Balance Sheet Strength: Shareholders’ equity is projected to grow steadily, bolstering the company’s financial stability.
• Cash Flow & Capex: Free cash flow to equity and to the firm show a positive trend, supporting sustainable dividend payouts and growth investments.

Detailed tables in the report illustrate the progression of key financial indicators from historical performance (Dec-23A, Dec-24A) through to forecasts (FY25F–FY27F), providing transparency and clarity to investors.

Investment Recommendation & Rating Methodology

The research report reiterates an “Add” recommendation for Frencken Group Ltd. Key points include:

• Target Price: A slight increase from S\$1.38 to S\$1.40, based on a 5-year average P/E multiple of 13.5x, reflecting improved medium-term earnings expectations.
• Upside Potential: With a current share price of S\$1.04, the target price implies an upside potential of 34.9%.
• Risks: The primary downside risks involve further cost escalation impacting net profit and potential weakening in semicon demand due to global trade tariffs and geopolitical tensions.
• Rating Framework: The recommendation definitions in the report specify “Add” for positions where a total return exceeding 10% over 12 months is expected.

The report also includes a comprehensive rating distribution, showing that the majority (67.4%) of ratings among the 598 companies covered are “Add” calls, while “Hold” and “Reduce” are allocated to 22.2% and 10.4% respectively.

Closing Summary

CGS International Securities Singapore Pte. Ltd.’s research report on Frencken Group Ltd is a detailed and engaging analysis that captures the company’s strong foothold in the semiconductor sector, robust financial performance, and proactive management initiatives. With diversified revenue segments, strategic capex plans, and solid ESG practices, Frencken Group Ltd is well-positioned for sustained growth. Investors are encouraged to consider the “Add” recommendation while being mindful of the outlined risks and market uncertainties.

This comprehensive analysis not only provides a deep dive into Frencken Group Ltd’s current performance but also benchmarks its positioning within the competitive landscape alongside global and regional peers. The report serves as a valuable resource for investors looking to make informed decisions based on detailed financial data, forward-looking guidance, and a robust ESG framework.