Broker: Maybank Research Pte Ltd
Date of Report: August 17, 2025
Frencken Group: Navigating 2025 Headwinds, Positioned for Semiconductor Recovery
Key Takeaways
- Target Price Cut to SGD1.60, BUY Maintained: Maybank lowers its target price from SGD1.75 to SGD1.60 but sustains a BUY, citing unchanged long-term prospects.
- 2H25 Guidance Disappoints: Frencken’s management expects a stable, rather than stronger, second half, breaking from historical trends.
- Sector Weakness, Yet Resilient Fundamentals: Challenges in analytical life sciences and European semiconductor clients are offset by solid fundamentals and strong sector positioning.
1H25 Performance: In Line, But Outlook Softens
Frencken Group reported 1H25 PATMI (Profit After Tax and Minority Interests) of SGD19.9 million, meeting both Maybank and consensus forecasts. Despite this, the company’s outlook for 2H25 is less robust than usual. Management projects a “stable” second half, diverging from the typical seasonal uptick. This cautious stance is attributed mainly to expected declines in analytical life sciences and potential headwinds from European semiconductor customers, influenced by US export controls.
Cut in Earnings Forecasts and Target Price
In response to management guidance and sector-specific challenges, Maybank has revised its earnings estimates:
- FY25E earnings lowered by 7.5%
- FY26E earnings cut by 17.5%
The new target price is SGD1.60, based on a 16.3x FY25/26E P/E valuation. Despite these revisions, the longer-term growth narrative remains intact, especially as Frencken is seen as a key beneficiary of a semiconductor industry rebound.
Industry and Customer Analysis
Frencken’s guidance for a flat 2H25 is notable, given that the company has historically enjoyed stronger results in the second half of the year. This deviation is mainly due to:
- Expected declines in analytical life sciences revenue
- Potential weakness from European semiconductor customers, linked to ongoing US restrictions on semiconductor equipment exports
Still, management remains upbeat on long-term expansion, supported by plans for new manufacturing facilities in Singapore and the US, including larger cleanrooms to serve key semiconductor clients.
Company Profile and Shareholder Structure
Frencken manufactures components and modules for diverse industries, including semiconductor, life sciences, automotive, and industrial automation. The company’s key shareholders are Micro Compact Sdn. Bhd. (6.2%), Precico Holdings Sdn. Bhd. (6.1%), and the Gooi Family (5.8%). The stock trades at a discount to local peers, offering an attractive entry point for investors.
Key Statistics |
Value |
Share Price (SGD) |
1.48 |
Market Cap |
SGD 630.6M |
52W High/Low (SGD) |
1.70 / 0.85 |
Issued Shares (m) |
426 |
Free Float (%) |
59.8 |
3M Avg Turnover (USDm) |
4.5 |
Financial Performance and Forecasts
Frencken’s financials reflect both resilience and near-term caution. Below is a summary of key figures and projections:
FYE Dec (SGD m) |
FY23A |
FY24A |
FY25E |
FY26E |
FY27E |
Revenue |
743 |
794 |
834 |
917 |
1,009 |
EBITDA |
80 |
91 |
85 |
93 |
107 |
Core Net Profit |
32 |
37 |
40 |
45 |
55 |
Core FDEPS (cts) |
7.6 |
8.7 |
9.3 |
10.5 |
12.9 |
Net DPS (cts) |
2.3 |
2.6 |
2.8 |
3.2 |
3.9 |
Core FD P/E (x) |
17.8 |
13.0 |
16.0 |
14.1 |
11.5 |
Net Dividend Yield (%) |
1.7 |
2.3 |
1.9 |
2.1 |
2.6 |
ROAE (%) |
8.2 |
8.9 |
8.9 |
9.4 |
10.7 |
Revised Forecasts: Earnings, Margins, and Efficiency
Maybank’s updated forecasts illustrate the impact of sector-specific headwinds, with trimmed revenue, gross profit, and core net profit projections for FY25E through FY27E. Margins are also expected to be slightly lower, but cost controls are evident in stable SGA ratios.
Metric |
FY25E New |
FY25E Old |
Change (%) |
FY26E New |
FY26E Old |
Change (%) |
Revenue (SGDm) |
834.0 |
873.8 |
-4.5 |
917.5 |
1,004.8 |
-8.7 |
Gross Profit (SGDm) |
114.3 |
121.2 |
-5.7 |
127.1 |
145.4 |
-12.6 |
Core Net Profit (SGDm) |
39.7 |
42.9 |
-7.5 |
44.9 |
54.4 |
-17.5 |
EPS (SGD) |
0.09 |
0.10 |
-7.5 |
0.11 |
0.13 |
-17.5 |
Value Proposition and Business Model
Frencken specializes in high-mix, low-volume, high-complexity technology hardware, especially for the mechatronics segment. The company’s customer base is “sticky,” with long-standing relationships, complementary competencies, and mutual dependency—often serving as sole-source for critical products. This enables Frencken to introduce higher value-add products, supporting margin expansion.
The company’s diversified end markets include semiconductor, medical, analytical, industrial automation, automotive, and consumer/industrial sectors. Frencken’s net cash balance sheet, strong cash flow, and a historical 30% earnings payout as dividends provide resilience and consistency.
Risks and Opportunities
- Upside: Stronger-than-expected contributions from semiconductor and industrial automation, robust margin improvements, and rising institutional interest could drive a positive re-rating.
- Downside: Risks include demand contractions, supply chain disruptions, and lower-than-expected dividend payouts.
ESG and Governance Insights
Frencken’s operations in electronics and automotive supply chains expose it to environmental, safety, and governance risks. Key highlights:
- No fines or sanctions for environmental or socioeconomic violations in recent years.
- Eco-PVD coating technology offers an environmentally friendlier approach for automotive coatings.
- Opportunities exist for greater use of recycled materials and improved water/electricity efficiency.
- Board comprises six directors with a strong independent majority (67%), though all are male. Three independent directors have served more than nine years, which Frencken asserts does not compromise their independence.
- Employee safety is a priority, with a 0% injury rate recorded in 2021. Male employees account for 66% of the workforce.
ESG Metrics and Initiatives
Frencken’s ESG score is 41 (below average). Key actions include:
- “Frencken*Sustain*Life” program, managed by board and key management
- Senior management compensation linked to ESG targets
- TCFD framework adopted for ESG reporting
- Implementation of solar panels at facilities in China, Malaysia, and Thailand
- Reusing cartons and plastic pallets to reduce waste
The company does not currently capture Scope 3 emissions nor use carbon offsets as part of net zero targets.
ESG Parameter |
Value |
Overall ESG Score |
41 |
% Women in Workforce (2021) |
32% |
Board Independence |
67% |
Female Directors |
0% |
Injury Rate (2021) |
0% |
Water Consumption Target |
<0.20% of sales value |
Electricity Consumption Target |
<7% of sales value |
Financial Ratios, Growth, and Efficiency Metrics
Frencken maintains a net cash position, healthy liquidity, and improving efficiency metrics. Notable highlights:
- Consistent revenue growth expected from FY25 onward, with a 10% YoY rise projected for both FY26E and FY27E.
- EBITDA margins steady around 10-11%.
- Current ratio above 2x, net gearing remains at net cash.
- Cash conversion cycle improving to 96.7 days from over 120 days in prior years.
- Dividend payout ratio maintained at 30%.
Share Price Performance and Valuation
Frencken’s share price has moved in tandem with sectoral and company-specific developments, with a 6% gain in the past month and 29% over three months, though underperforming the index on a 12-month basis. The stock remains attractively valued relative to peers, especially considering its position as a key beneficiary of a semiconductor recovery.
Conclusion: Top Pick in Singapore Tech, Eyes on the Recovery
Despite a cautious near-term outlook and downward revisions to earnings, Frencken Group’s robust business model, diverse end-markets, consistent dividend policy, and strong balance sheet reinforce its long-term investment appeal. Maybank reiterates its BUY rating, positioning Frencken as a top pick in the Singapore technology sector for investors seeking to ride the next semiconductor upcycle.