Highlights

Simons Trading Research

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

 

Frencken Group - No Surprises in 3Q21 Business Update

Author:   |    Publish date:


  • Frencken’s 3Q21 earnings of S$14.8m (+10.7% y-o-y, -10.8% q-o-q) took 9M21 net profit to 77% of our full-year estimate. The business update presented no surprises, as revenue continued to be led by a positive momentum in the semiconductor segment, driving improved operating leverage.
  • We expect the semiconductor segment to continue driving growth going forward, driven by the accelerating development of 5G technology. Maintain BUY.

Frencken's 3Q21 Net Profit in Line With Expectations

  • In its business update, Frencken (SGX:E28) reported headline 3Q21 earnings of S$14.8m (+10.7% y-o-y, -10.8% q-o-q), taking 9M21 net profit to 77% of our full-year estimate. 3Q21 revenue of S$196.5m (+18.7% y-o-y) was in line with its previous guidance; growth was led by the semiconductor (+42.7%), analytical (+29.0%) and medical (+21.8%) segments, which were offset partially by declines in the industrial automation (-17.0%) and automobile (-5.6%) segments.
  • For the quarter, gross margin eased 0.5ppt y-o-y and q-o-q to 17.1% due to expected increases in material and freight costs. This brought 9M21 gross margin to 17.3%, largely in line with our estimates of 17.4% for 2021.

Structural Growth Drivers in the Semiconductor Sector Intact

  • Frencken remains in a good indicative demand from clients points towards continued growth going into 2022.

Near-term Demand for Semiconductor Components to Remain Strong

  • The current chip of the secular uptrend, which is likely to be sustained into 2022.

Gross Margin Uplift Towards 17.4%

  • This compares with the 15.2-16.9% range in 2016-19, with the increase attributable to the higher share of the more profitable semiconductor segment from 16% in 2016 to an estimated 40% in 2022 (2020: 30%). Additionally, the ongoing group-wide cost-cutting measures and efficiency improvements such as upgrading of equipment and facilities are expected to improve operating margins, further bolstering bottom-line.

Valuation & Recommendation

  • No changes to supported by its strong earnings growth profile, with EPS CAGR estimated at 24% over 2020-23.
  • Catalysts:
    • Higher-than-expected factory utilisation rates.
    • Better-than-expected cost management.

Source: UOB Kay Hian Research - 18 Nov 2021

Share this
Labels: Frencken

Related Stocks

Chart Stock Name Last Change Volume 
Frencken 1.31 +0.06 (4.80%) 7,681,200 

  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
 
 

176  206  223  588 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 Sembcorp Marine 0.118+0.003 
 HSI 21800MBeC.. 0.054-0.008 
 Acesian Partners 0.057-0.004 
 Eucon^ 0.063+0.004 
 HSI 21200MBeC.. 0.034-0.009 
 HSI 19600MBeP.. 0.083+0.001 
 Wilmar Intl 4.09-0.21 
 Oceanus^ 0.018+0.001 
 Logistics 0.054+0.005 
 CapitaMall Trust 2.10-0.03 
PARTNERS & BROKERS