Frencken Group Ltd: Slower Recovery with a Promising Future

Report Date: November 20, 2024

Broker: Maybank Research Pte Ltd

Overview of Frencken Group Ltd

Frencken Group Ltd, a prominent player in the technology sector, continues to demonstrate resilience amidst a challenging economic landscape. The company specializes in manufacturing complex components and modules for various industries, including semiconductor, life sciences, automotive, and industrial automation. Despite facing some headwinds, Frencken remains a top pick in the Singapore tech sector.

Financial Performance

In the third quarter of 2024, Frencken reported a revenue of SGD198.6 million and a profit after tax and minority interest (PATMI) of SGD9.2 million, reflecting a 7.7% increase quarter-on-quarter and a 29.3% rise year-on-year. Although these figures fell short of consensus and expectations, the company still shows promise with its strategic positioning and industry focus.

Challenges and Growth Prospects

The company faced slower-than-expected growth in its medical and automotive segments, with a 4.3% year-on-year contraction in medical revenue. However, the life sciences segment showed resilience with a 4.2% increase. Frencken’s semiconductor segment is poised for recovery amidst global chip shortages, positioning it as a key beneficiary in the anticipated industry upturn.

Strategic Insights

Despite the challenges, Frencken’s diverse portfolio and strong customer relationships are significant strengths. The company’s high-mix, low-volume, and high-complexity production capabilities in the mechatronics segment ensure a sticky customer base, which is crucial for sustaining growth.

ESG Considerations

Frencken is committed to sustainable practices, as evidenced by its Eco-PVD technology, which offers a more environmentally friendly approach to automotive coating. The company is optimistic about its long-term prospects in this area and is actively exploring opportunities to increase the use of recycled materials.

Future Outlook and Recommendations

Looking forward, the management anticipates higher revenue in the second half of 2024 compared to the first half. The much-anticipated ramp-up in semiconductor orders is expected to materialize in the second or third quarter of 2025. Despite potential trade restrictions between the US and China, the long-term growth story remains intact.

Maybank Research Pte Ltd maintains a “Buy” recommendation for Frencken Group Ltd, albeit with a slightly reduced target price of SGD1.50, reflecting a 14x FY25E P/E ratio. Frencken’s position as a leading manufacturer in the tech sector, combined with its strategic initiatives, positions it well for future growth, making it a compelling investment opportunity for those looking to capitalize on the tech sector’s recovery.