Simons Trading Research

Author: simonsg   |   Latest post: Mon, 8 Aug 2022, 9:09 AM


Frencken Group - Avimac Acquisition to Ramp Up Semiconductor Capacity, Exposure to Aerospace

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  • Frencken made a relatively small acquisition for an aerospace and semiconductor-focused company, Avimac Pte Ltd, for S$14m. We believe the acquisition would help ramp up capacity expansion, particularly in the semiconductor segment, as well as to help Frencken gain access to new technologies and competencies.
  • We are maintaining our BUY rating for Frencken with a slight increase in target price to S$2.62 (from S$2.52) due to higher valuations of key clients.

Bite-sized Acquisition of Avimac

  • Frencken (SGX:E28) made a S$14m acquisition for Avimac Pte Ltd (Avimac), a high precision manufacturing company with a focus in the aerospace and semiconductor industries. The deal, valued at 3.2x P/B, is intended to help Frencken expand capacity, particularly for the semiconductor segment, as well as to gain access to new technologies and competencies in the aerospace industry.
  • Avimac was founded in 2018 by industry veteran Mr. Joe Lau, who was the founder of JEP Precision Engineering. Prior to the acquisition, Avimac was a supplier to Frencken in various manufacturing programmes.
  • Frencken's management cited that Avimac could act as a springboard for the group to penetrate the commercial aerospace engineering industry given its established customer base (counting GE Aviation and Commercial Aircraft Corporation of China as clients), certified manufacturing facilities and forthcoming programmes.

Strong Balance Sheet Fully Supports Acquisition

  • As at 30 Jun 21, Frencken’s cash does not foresee a significant increase in Frencken’s operating expenses or working capital requirements.

Demand for Semiconductor Components to Remain Strong

  • The current chip are seeing a secular uptrend and we are of the view that demand for semiconductor parts and equipment is likely to be sustained into 2022.

Frencken Group - Valuation

  • No changes to our forecasts. Maintain BUY rating on Frencken with a slightly EPS CAGR estimated at 24% over 2020-23.
  • Catalysts to Frencken's share price:
    • Higher-than-expected factory utilisation rates.
    • Better-than-expected cost management.

Source: UOB Kay Hian Research - 15 Sep 2021

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Labels: Frencken

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Frencken 1.31 +0.06 (4.80%) 7,681,200 

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