Introduction
The comprehensive report on Frencken Group, a global integrated technology solutions company, outlines a robust performance in 2024 with earnings in line with expectations and a cautiously optimistic outlook despite current uncertainties. The company, which provides ODM and OEM services to various industries including automotive, healthcare, industrial, analytical & life sciences, and semiconductors, continues to navigate challenging market dynamics while capitalizing on growth opportunities particularly in the semiconductor market.
Frencken Group Overview
Frencken Group’s 2024 earnings reached S\$37 million, marking a 14% year-on-year increase. The revenue grew by 7% to S\$794.3 million, driven by the robust performance in key segments such as semiconductors, analytical & life sciences, and medical, while declines in automotive and industrial automation revenues were noted. The company’s solid financial performance has been underpinned by improved operating leverage, with the gross margin expanding by 1.3 percentage points to 14.5%.
With a share price of S\$1.04 and a revised target price of S\$1.16 (an 11.5% upside), Frencken remains a BUY. The target price adjustment reflects a concession in the PE multiple peg (reduced from 14x to 12.5x 2025F PE) in light of a more cautious sentiment driven by uncertain geopolitical conditions, though there is confidence in the recovery of the semiconductor cycle.
Segment Deep Dive
Semiconductor Segment
The semiconductor business witnessed a significant boost, growing by 29% year-on-year. This was primarily driven by increased orders from a key European customer combined with the ongoing recovery in Asian operations. Frencken Group is positioning itself to leverage this momentum, anticipating higher revenue in the first half of 2025. The industry’s long-term outlook remains positive, even if market volatility persists.
Analytical & Life Sciences and Medical Segments
The analytical & life sciences segment experienced steady performance with a 7% year-on-year growth, boosted by strong sales from a key European customer. Similarly, the medical segment reported modest revenue gains of 2% year-on-year, contributing to the overall revenue stability and margin expansion.
Automotive and Industrial Automation Segments
In contrast, the automotive business declined by 12% as did the industrial automation segment, which experienced a steep 52% drop due to slower customer orders. Despite these challenges, the overall performance of Frencken Group was anchored by the gains in other high-growth segments.
Financial Performance and Guidance
The detailed profit & loss analysis shows a steady progression in key financial metrics over the forecast period. With net turnover increasing from S\$794.3 million in 2024 to an expected S\$907.4 million by 2027, and EBITDA improving from S\$74.2 million to an estimated S\$87.7 million, the company demonstrates clear growth.
Operating profit is expected to rise from S\$43.6 million in 2024 to S\$51.1 million in 2027. Despite margin pressures in some segments, the overall net margin is poised to remain stable around 4.9% over the mid-term. The balance sheet also remains robust with steadily increasing shareholders’ equity, while the debt metrics indicate a prudent leverage strategy.
The cash flow analysis highlights positive operating cash flows and a prudent capital expenditure plan aimed at enhancing production resources, particularly with plans to expand production capacity in Singapore and inaugurate a new US facility in 1H25. These initiatives underscore Frencken Group’s focus on operational efficiency and long-term resilience.
Valuation & Recommendation
UOB Kay Hian maintains a BUY recommendation on Frencken Group despite the modest reduction in the target price. The recommendation is supported by strong operating performance and improved gross margins, with a forward PE multiple peg set at 12.5x 2025F earnings, slightly above the historical mean to account for the semiconductor recovery potential. This positive outlook is reinforced by the company’s diversified revenue base and strategic expansion initiatives.
Peer Comparisons and Company Analysis Across Segments
SGX-Listed Peers
The report provides a comparative analysis of Frencken Group with SGX-listed peers:
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Venture: Trading at a premium, Venture’s target price remains supported by a higher PE multiple (14.6x for 2025F) and relatively strong ROE, although with a higher share price compared to Frencken.
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AEM: With a share price of S\$1.32 and a PE of 17.9x for 2025F, AEM’s performance is noted for its lower margin but competitive valuation.
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UMS: Trading at S\$1.02, UMS presents a PE of 16.1x for 2025F, coupled with a strong ROE, positioning it as a formidable peer in the industry.
Semiconductor Peers
The semiconductor segment is supported by global leaders:
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ASML: Dominating with high trading prices (EUR 682.2) and a PE ratio of 27.9x for 2025F, ASML’s stellar performance highlights the high expectations in the semiconductor industry.
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Intel: With a trading price of USD 23.09 and an impressively high PE of 47.7x for 2025F, Intel’s valuation paired with its scale makes it a critical comparative benchmark.
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Kulicke & Soffa: Trading at USD 37.85, its performance is underscored by a PE of 23.7x for 2025F, reflecting the technical depth and market share it commands.
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Benchmark Elec: With a trading price of USD 39.6 and a PE of 16.5x for 2025F, Benchmark Elec rounds out the segment comparison with a balanced valuation outlook.
Industrial Automation Peers
The industrial automation space is evaluated with peers such as:
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Seagate Tech: Trading at USD 100.67, it features a PE of 13.6x for 2025F. Seagate’s valuation is notable with a pronounced focus on asset efficiency.
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Western Digital: With a trading price of USD 48.2 and a lower PE of 8.4x for 2025F, Western Digital’s performance draws attention to scale and market adaptability.
Analytical & Medical Peers
In the analytical and medical segments, several key players provide the benchmark:
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Thermo Fisher: With a trading price of USD 523.23 and a PE of 22.4x for 2025F, Thermo Fisher’s leadership is evident with strong margin profiles and innovation.
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Oxford Instruments: Trading at GBp 1892, it maintains a consistent performance with a PE of 16.4x for 2025F, showcasing stability in pricing power.
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Koninklijke Philips: Trading at EUR 24.92, Philips boasts a PE of 15.7x for 2025F, balancing market growth and valuation.
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Siemens Healthineers: At EUR 53.56, this entity rounds out the group with an impressive PE of 21.8x for 2025F, underlining its status as a key global player.
Automotive Peers
The automotive sector comparison includes:
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Valeo: Trading at EUR 9.926, it sports a relatively low PE of 6.3x for 2025F, reflecting a cautious market view in the automotive space.
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Visteon: With a trading price of USD 86.57 and a PE of 10.1x for 2025F, Visteon emphasizes balanced growth expectations.
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Thyssenkrupp: Trading at EUR 7.474 and a PE of 10.0x for 2025F, Thyssenkrupp represents a stable, yet modest, valuation.
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Bosch: With a price of INR 26498.35, Bosch’s high trading levels are supported by a vigorous market presence and substantial industry valuation.
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Denso: At JP JPY 1935, Denso maintains a PE of 10.4x for 2025F, underpinning its role as a critical player in the automotive supply chain.
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Johnson Controls: Trading at USD 84.25 with a PE of 23.3x for 2025F, Johnson Controls exhibits strong market confidence paired with robust operational metrics.
Stock Impact & Catalysts
Frencken Group is actively working on initiatives to build resilience and ensure adaptability in a shifting market landscape. With a focus on expanding production capacity both in Singapore and the US, the company’s initiatives are designed to enhance operational efficiency, increase capacity, and capitalize on future opportunities. Higher-than-expected factory utilization rates and improved cost management are seen as key catalysts that could drive further upward momentum.
Conclusion
The report encapsulates Frencken Group’s balanced performance in 2024, underpinned by growth in high-performing segments such as semiconductors, analytical & life sciences, and medical, despite headwinds in automotive and industrial automation. With strategic initiatives in place, a diversified revenue mix, and a robust financial profile, Frencken Group remains a compelling BUY at a target price of S\$1.16. Peer comparisons further highlight the company’s competitive positioning across various segments, underscoring its resilience and growth potential in a dynamic global market.
