Benefitting From Semiconductor Turnaround; Industrial Automation Remains Key

• We expect FRENCKEN GROUP (SGX:E28) to benefit from the turnaround in the Semiconductor segment given its 20% revenue exposure. Industrial Automation remains a key division, riding on the optimistic outlook of its key customer.
• Frencken Group’s strong presence in a wide variety of industries and business segments - Automotive, Analytical & Life Science, Medical, Semiconductor and Industrial & Industrial Automation provides greater resilience and stability.
• At 9.4x FY19F and 8.5x FY20F earnings, Frencken Group is trading at about 30% discount to its peers’ average of 12x price-to-earnings (PE). In our view, this discount is too steep.
• Frencken Group Share Price is supported by a dividend yield of about 3.2%, based on a 30% payout ratio.

Where We Differ

• We use a lower PE multiple of 10x, which is at a 20% discount to its peers’ average given Frencken Group’s smaller scale.

Potential Catalysts

• Positive outcome from US-China trade negotiations;
• Better operational efficiency to improve margins.

Source: DBS Research - 29 Nov 2019