Frencken Group Ltd (FRKN SP): 1H25 Outlook Lowered, Still an Add? – May 2025 Analysis

CGS International

May 21, 2025

Frencken Group Ltd: Lowered Growth Outlook but Strong Semiconductor Segment Drives Optimism

Frencken Group Ltd (FRKN SP) faces revised growth expectations, but a resilient semiconductor segment and strategic initiatives underpin a positive outlook. This analysis delves into Frencken’s recent performance, revised revenue guidance, and future prospects, offering insights for investors and market observers.

1Q25 Results: In Line with Expectations

Frencken reported a net profit of S\$10.0m for 1Q25, marking an 11% year-over-year increase and a 2% quarter-over-quarter rise.
Net profit margin stood at 4.63%, a slight decrease of 0.02% year-over-year but an improvement of 0.23% quarter-over-quarter.
Revenue reached S\$215.8m, up 12% year-over-year but down 3% quarter-over-quarter.
These figures align with forecasts, with revenue at 26% and net profit at 24% of FY25F estimates.
The company’s net cash position at the end of March 2025 was S\$71.8m, with a net gearing of 0.16x.
The semicon segment saw a 34% yoy increase while medical segment reported 1% yoy growth.

Segment Performance

Semiconductor: Experienced substantial growth, increasing by 34% year-over-year, and now accounts for 49% of group revenue, up from 41% in 1Q24. [[1]]
Medical: Showed modest growth of 1% year-over-year. [[1]]
Analytical and Life Sciences: Revenue remained stable at S\$46.0m in 1Q25 compared to S\$46.6m in 1Q24. [[1]]
Automotive: Faced a decline of 14% year-over-year. [[1]]
Industrial Automation: Registered a significant decrease of 19% year-over-year. [[1]]

Gross Margin Expansion

Gross margin improved from 13.7% in 1Q24 to 14.8% in 1Q25. [[1]]
This expansion was primarily driven by higher revenue contributions from the key semiconductor segment. [[1]]

Revised 1H25F Revenue Guidance

Management has adjusted its 1H25F revenue guidance to reflect moderate growth compared to 2H24, a shift from previous expectations of higher growth. [[1]]
This revision is attributed to uncertainties arising from the US government’s tariff policies announced in April 2025. [[1]]
Despite these adjustments, Frencken reports no major changes to current programs with key customers, who are closely monitoring the tariff situation. [[1]]
Frencken aims to reinforce its position as a strategic partner by working closely with its customers. [[1]]

Investment Thesis: Retaining “Add” Recommendation

CGS International maintains an “Add” rating for Frencken, driven by a positive outlook for the semiconductor segment, which is expected to fuel core EPS growth from FY25-27F. [[2]]
The target price has been raised to S\$1.27, reflecting increased confidence due to the share price already incorporating some tariff-related uncertainties. [[2]]
The target P/E ratio is lifted to 12.2x, which is -0.5 standard deviations below its 5-year average (2021-25). [[2]]

Potential Catalysts and Risks

Re-rating catalysts: Faster recovery in the semiconductor business driven by new end-consumer products, better cost controls, and greater concessions from customers on cost pass-throughs. [[2]]
Downside risks: Further cost escalation affecting net profit negatively and weakening demand for the semiconductor business segment. [[2]]
Management plans to fund the Singapore expansion through cash and bank borrowings. [[2]]

Valuation

The revised target price of S\$1.27 is based on a target P/E of 12.2x. [[2]]
This is adjusted from a previous valuation of 11.1x, which reflected concerns over the earnings impact from tariffs. [[2]]

Peer Comparison

A comparison against industry peers provides additional context to Frencken’s valuation and growth prospects. [[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	1.14	1.27	376	11.5	10.9	9.9%	1.04	9.1%	2.6%
Benchmark Electronics Inc	BHE US	NR	37.12	NA	1,340	16.0	14.2	na	1.21	7.8%	1.9%
Celestica Inc	CLS US	NR	112.7	NA	13,043	22.3	18.4	25.7%	7.31	29.1%	na
Flex Ltd	FLEX US	NR	42.27	NA	16,194	20.0	13.2	16.0%	3.15	21.3%	na
Malaysian Pacific Industries	MPI MK	Reduce	20.14	14.90	934	30.9	25.4	na	1.93	6.2%	1.5%
SAM Engineering & Equipment	SEQB MK	Reduce	3.93	3.00	619	25.6	21.4	na	1.68	6.6%	0.6%
Sanmina Corp	SANM US	NR	82.32	NA	4,401	14.7	na	na	1.90	14.3%	na
Unisem	UNI MK	Reduce	2.10	1.00	788	na	na	32.9%	na	3.2%	na
UWC BHD	UWC MK	NR	2.10	NA	521	30.0	21.1	27.2%	4.19	15.2%	0.7%

ESG Factors

Frencken Group is committed to a solid governance structure, which is essential for the long-term prosperity. [[3]]
Customer concentration is a risk with three key customers accounting for c.52.6% of its FY24 group revenue. [[3]]
Frencken introduced the ESG (FSL) Dashboard to collate data from all operating sites. [[3]]
Frencken has improved on its ESG pillars and occupational safety and health (OSH) policies. [[3]]

Financial Highlights and Forecasts

The following table summarizes key financial forecasts for Frencken Group:

(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)	14.87	13.01	11.52	10.88	10.10
Price To Sales (x)	0.65	0.61	0.58	0.55	0.53
DPS (S\$)	0.023	0.026	0.029	0.031	0.034

Key ratios and financial forecasts indicate a positive trajectory for Frencken, supported by revenue growth and enhanced profitability. [[4]]

Revenue Breakdown and Growth Drivers

Semiconductor revenue and industrial automation revenue are significant drivers for the company’s overall performance. [[5]]

Industrial automation revenue (S\$m): 29.0 (Dec-23A), 29.7 (Dec-24A), 41.9 (Dec-26F), 46.2 (Dec-27F) [[5]]
Semiconductor revenue (S\$m): 365.5 (Dec-23A), 402.0 (Dec-24A), 26.4 (Dec-26F), 24.3 (Dec-27F) [[5]]