• Frencken will report its 1H21 results after market closes on 12 Aug 2021.
• With the strong demand from the semiconductor industry, Frencken's 2Q21F net profit could grow 62.7% y-o-y.
• Our target price for Frencken is raised to S$2.34, driven by our earnings upgrade and a higher sector average P/E multiple.

Frencken's 2Q21 Net Profit Could Grow 62.7% Y-o-y

• Frencken (SGX:E28) will report its 1H21F results after market closes on 12 Aug 2021. Over FY18-20, the first half of the year accounted for 38-42% of the full-year’s core net profit (average: 40%), while the second half accounted for 58-62% (average: 60%).
• Given the strong performance of the semiconductor industry (23% of 1Q21 revenue), we think FY21F could possibly see a departure from the historical norm, with a 50/50 core net profit split between 1H21F and 2H21F.

ASML (a Key Semicon Customer) Has Raised Sales Guidance

• According to our European research partner Liberum, ASML Holding’s (ASML NA) initial guidance (in Jan 2021) for its 2021F revenue growth was around 12% to €15.7bn. Post-2Q21 results, ASML raised growth driver.

Raising Our Earnings Expectations

• According to the Semiconductor Industry Association (SIA), global sales of semiconductors reached also project some margin improvements.

Reiterate ADD on Frencken With Higher Target Price

• With the current FY22F sector average P/E having risen to 15.3x (previously: 13.5x), our target price for Frencken is raised to S$2.38, driven by the higher P/E peg and our earnings upgrades.

• Downside risks are supply automation segments.

Source: CGS-CIMB Research - 4 Aug 2021