UOB Kay Hian Private Limited

Thursday, 22 May 2025

Frencken Group (FRKN SP): Buy Maintained; Moderate Revenue Growth Outshines Peers

Frencken Group: Company Overview

Frencken Group (FRKN SP) is a global integrated technology solutions company providing ODM and OEM services. The group caters to various industries, including automotive, healthcare, industrial, analytical & life sciences, and semiconductor [[1]].

Stock Data and Performance

• GICS Sector: Information Technology [[1]]
• Bloomberg Ticker: FRKN SP [[1]]
• Shares Issued: 427.1 million [[1]]
• Market Cap: S\$482.6 million (US\$373.9 million) [[1]]
• 3-Month Average Daily Turnover: US\$2.2 million [[1]]
• 52-Week High/Low: S\$1.69/S\$0.825 [[1]]

Price Performance (%):

• 1 Month: 18.3 [[1]]
• 3 Months: (0.9) [[1]]
• 6 Months: (4.2) [[1]]
• 1 Year: (18.1) [[1]]
• Year-to-Date: 0.0 [[1]]

Major Shareholders (%):

• Dato’ Gooi Soon Chai: 23.7 [[1]]

• FY25 NAV/Share (S\$): 1.09 [[1]]
• FY25 Net Cash/Share (S\$): 0.25 [[1]]

Investment Thesis: Moderate Revenue Growth

Frencken’s 1Q25 earnings of S\$10m (+12% yoy) are in line with expectations. Revenue grew 12% yoy, driven by growth in the semiconductor and medical segments. The analytical life sciences segment remained stable, while industrial automation experienced weakness [[1]]. The company anticipates moderate revenue growth in 1H25 compared to 2H24, particularly in the semiconductor and medical sectors, outperforming industry peers [[2]].

Recommendation

Maintain BUY with a revised target price of S\$1.40 (previously S\$1.16), indicating an upside of +23.9% [[1]]. The new target price is pegged to 15x 2025F PE [[2]].

1Q25 Results Analysis

Frencken’s 1Q25 earnings aligned with expectations, representing 25% of the full-year forecast. This improvement was fueled by a 12% year-over-year revenue increase and enhanced gross margins [[2]].

• Gross Margin: Increased by 1.1 percentage points to 14.8% in 1Q25, primarily due to better operating leverage [[2]].
• Revenue Growth: The semiconductor (+43% yoy) and medical (+1% yoy) segments primarily drove overall revenue growth. This was partially offset by declines in the automotive (-14% yoy) and industrial automation (-19% yoy) segments [[3]].
• Semiconductor Segment: Benefited from steady growth from a key European customer and a strong rebound in Asian operations. The Asian operations were boosted by increased demand and a broader product portfolio in the front-end equipment sector [[3]].
• Analytical Life Sciences Segment: Remained stable, supported by higher sales from Asian operations and increased orders from a major European customer, which mitigated softer demand from other customers [[3]].

Outlook for 1H25

Frencken maintains a cautiously optimistic outlook, expecting moderate revenue growth in 1H25 compared to 2H24. Segment performance expectations include [[3]]:

• Semiconductor: Higher revenue
• Medical: Higher revenue
• Analytical Life Sciences: Stable revenue
• Industrial Automation: Stable revenue
• Automotive: Lower revenue

The company remains vigilant due to increasing geopolitical and macroeconomic uncertainties [[4]].

Key Financials

Key Financial Data (S\$m):

Stock Impact: US Tariffs

Frencken anticipates minimal impact from US tariffs, as shipments to the US accounted for approximately 9% of its 2024 revenue, with most exports originating from Singapore. The company believes its business model, characterized by market diversity and strong partnerships, enhances its resilience [[26]].

Global Reach, Local Expertise

Frencken has strategically focused on developing balanced capabilities across its global sites through internal knowledge and technology transfers. This positions the company to leverage its infrastructure in Asia, Europe, and the US, enabling “local-for-local” manufacturing and supply chain diversification. To date, Frencken has not observed significant changes in its business programs with key customers. Measures to mitigate tariff uncertainties include discussions with relevant parties regarding supply chain adjustments and cost pass-through strategies [[26]].

Earnings Revision

Financial estimates are maintained [[27]].

Valuation and Recommendation

Maintain BUY with a 20% higher target price of S\$1.40, pegged to 15x 2025F PE, based on 1SD above mean PE. The increased PE multiple reflects confidence in Frencken’s ability to outperform peers due to its local manufacturing capabilities and diversified geographical footprint [[27]].

Share Price Catalyst

Potential catalysts include higher-than-expected factory utilization rates and improved cost management [[27]].

Peer Comparison

Peer Comparison Table:

Financial Projections

Profit & Loss Statement (S\$m):

Balance Sheet (S\$m):

Cash Flow Statement (S\$m):

Key Metrics (%):