Simons Trading Research

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


Frencken - 2H21 Results in Line; Semiconductor Remains Key Driver in 2022

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  • Frencken (SGX:E28)’s 2H21 earnings of S$27.4m (+14.9% y-o-y, -12.6% h-o-h) took full-year net profit to S$58.7m (+38%), meeting estimates. In 2021, the semiconductor sub-segment (+55.6%) led positive operating leverage on sustained demand for lithography systems.
  • Expected ROE uplift from top-line expansion to continue into 2022-24 for Frencken, supported by streamlining of operations and cost initiatives, with 3-year EPS CAGR of 18.9% over the period.

Frencken's 2H21 Results

  • Semiconductor sub-segment clear growth driver… Frencken’s 2H21 revenue of S$391.8m (+19.4% y-o-y, +4.4% h-o-h) brought 2021 revenue to S$767.1m (+23.6%). For the year, this was led by positive contributions from the semiconductor (+51.5%), medical (+26.4%) and analytical & life sciences (+25.3%) sub-segments, but was partially offset by industrial automation (-15.9%) and automotive (-15.9%).
  • … outweighs slow automotive sub-segment. While Frencken's 2H21 gross margin eased to 16.2% (2H20: 18.3%, 1H21: 17.4%) mainly on supply chain bottlenecks in the automotive industry, we are of the view that the chip shortage situation is anticipated to improve in 1H22. Nevertheless, Frencken’s full-year net profit improved to S$58.7m (+38%) on higher net margin of 7.7% (+0.8ppt), thanks to better profitability of the semiconductor sub-segment.
  • Management declared a first and final dividend of S$0.0413 (2020: S$0.03), maintaining the 30% payout ratio.

1H22 to be Sequentially Better

  • Relative to 2H21, sales guidance is anticipated to be better for semiconductor, industrial automation and automotive back of 10.5% revenue CAGR over the same period, due to better operational efficiency. We expect 2022-24 EBITDA margins to normalise at the 12.5% range, compared to the sub-10% region between 2014 and 2018.

Frencken - Earnings Forecast & Recommendation

  • No changes to our attractive due to its strong earnings growth profile, with EPS CAGR estimated at 18% over 2021-24.
  • Catalysts:
    • Higher-than-expected factory utilisation rates.
    • Better-than-expected cost management.

Source: UOB Kay Hian Research - 4 Mar 2022

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Labels: Frencken

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

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