Brokers&rsquo take: Maybank upgrades Frencken Group to &lsquo buy&rsquo , says worst is over

MAYBANK Research has upgraded its call for  Frencken Group : E28 +9.52%  from &ldquo sell&rdquo to &ldquo buy&rdquo on Wednesday (Jan 25), stating that the &ldquo worst is over&rdquo .

New orders secured in the medical, analytical, life sciences, and semiconductor segment, as well as recovery in margins, are expected to help drive the group&rsquo s growth in FY2023, senior analyst Jarick Seet said.

The research house also expects the integrated technology solutions provider to introduce products with greater value-add which will in turn drive margins further.

Seet increased FY2023-FY2024 core net profit forecasts for the integrated technology solutions provider by 11.7 per cent and 12.9 per cent respectively to S$57.7 million and S$59.9 million, and raised the target price to S$1.21 from S$1.02. 

This comes as Frencken&rsquo s largest semiconductor customer ASML reported strong fourth-quarter results, with expectations of a 25 per cent year-on-year net sales growth for FY2023. 

While ASML&rsquo s customers expect the market to rebound in the second half of FY2023, Seet noted that there is still strong demand for ASML&rsquo s systems due to long order lead times and the strategic nature of lithography investments. 

This positive sign for Frencken&rsquo s semiconductor segment is projected to further boost the group&rsquo s growth in FY2023.

Frencken is also expected to benefit from the drop in electricity prices. Seet noted that the group&rsquo s margins are also projected to recover in subsequent quarters since the cost increases have been passed on to customers.

&ldquo Over the medium term, we expect earnings to be driven by revenue growth and margin optimisation through new products and improving efficiencies,&rdquo Seet added.

Shares for Frencken Group rose 7.6 per cent or S$0.08 to S$1.13 as at 10.58 am on Thursday.

Maybank upgrade today
 

Frencken Group Ltd (FRKN SP)

by Jarick Seet

 

Share Price:

 

SGD1.05

 

Target Price:

 

 

Recommendation:

 

Buy

 

Worst is over U/G to BUY

 

ASML, Frencken&rsquo s largest customer for their semi-con segment has just reported a strong 4Q22 and expect 25% YoY net sales growth for 2023 coupled with falling electricity prices will likely benefit Frencken. As a result, we increase our FY23E and FY24E PATMI forecasts by 11.7% and 12.9%, which in turn increases our TP to SGD1.21, based on a higher 9x FY23E P/E as tech valuations picked up in the last 2 months globally. We feel the worst is over for Frencken and upgrade to a BUY.