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]]
