FRENCKEN: Semiconductor recovery's only a little delayed, so analysts are still rooting for this stock

The semiconductor industry is on the brink of a significant recovery, fueled by demand for advanced technologies like artificial intelligence (AI), 5G, and electric vehicles. Companies like Singapore-listed Frencken Group (market cap: S$517 million), a key player in the tech manufacturing space, are well-positioned to benefit from this upturn. Despite some short-term challenges, which showed in its 3Q2024 results, analysts agree that Frencken's long-term growth story remains strong. With S$27.3 million achieved, Frencken is on track to exceed 2023 earnings. Frencken offers its extensive expertise in mechatronics engineering, integrated manufacturing services, and customized solutions. It also boasts of a global presence counting TSMC and Applied Materials among its clients. Here's a breakdown of what three houses—UOB Kay Hian, CGS International, and Maybank Kim Eng —think about Frencken's recent 3Q2024 performance and future prospects.

"Frencken Group (Frencken) 3Q24 earnings of S$9.2m (+29% yoy/flat qoq) missed our expectations by 16%, with 9M24 earnings forming only 61% of our full-year forecast." -- UOB KH analyst John Cheong

What Analysts Agree On

1. Semiconductor Recovery is Coming
   All three highlight that while the semiconductor segment is currently facing delays in its recovery, the long-term outlook remains positive.
   
   This recovery is expected to gain momentum over 2025-2026, driven by increasing demand for AI-related technologies and other innovations.
   
   
2. Short-Term Challenges in 3Q24 Results
   Frencken's 3Q results fell short of expectations due to weaker performance in segments like medical and automotive.
   
   However, revenue from semiconductors and life sciences showed some growth, cushioning the overall impact.
   
   
3. Valuation Consistency
   All analysts use a forward price-to-earnings (P/E) ratio of around 14x FY25 earnings to value Frencken.
   
   This reflects their belief in the company's ability to capitalize on the upcoming semiconductor recovery cycle.
   
   
4. Positive Long-Term Outlook
   Despite recent setbacks at Frencken, all three analysts maintain a bullish stance on Frencken's long-term potential.
   
   They see the company as a key beneficiary of the semiconductor industry's resurgence and expect it to deliver strong growth in the coming years.
   
   

"We reiterate our Add call on Frencken as we believe the order recovery among its semicon customers is intact (albeit delayed), could lead to a resumption of core EPS growth in FY25-26F." --- CGS analyst William Tng, CFA

Where Analysts Differ

1. Target Prices
   • UOB Kay Hian: Buy, SGD 1.31 (+8.3% upside versus recent price $1.21)
   • CGS: Add, SGD 1.38 (+14.0% upside)
   • Maybank: Buy, SGD 1.50 (+24.0% upside)
     
     
   Maybank is the most optimistic, reflecting its confidence in Frencken's ability to outperform its peers in Singapore's tech sector. 
   
   
2. Revenue Growth Projections
   While all analysts expect revenue to grow over time, Maybank has the highest forecast for FY25 at SGD 858 million, compared to UOB Kay Hian's SGD 815 million and CGS's SGD 821 million.
   
   
3. Dividend Yield Expectations
   Maybank projects a more generous dividend yield of 3.5% by FY26, whereas UOB Kay Hian and CGS estimate yields closer to 2%-3%.
   
   
4. Segment-Specific Focus
   • UOB Kay Hian emphasizes growth in semiconductors (+23% YoY) and life sciences (+4% YoY).
     
     
   • CGS highlights mechatronics as a key driver but notes weakness in industrial manufacturing services (-7.4% YoY).
     
     
   • Maybank focuses on Frencken's leadership in semiconductors and its ability to weather challenges better than its peers. 
     
     

Who Has the Most Positive View? Maybank stands out with its higher target price (SGD 1.50) and stronger confidence in Frencken's ability to deliver robust earnings growth over the next few years. It also highlights Frencken as its "Top Pick" in Singapore's tech sector. "We believe the much-anticipated ramp up in orders will now likely only come in 2-3Q25 as we do not see any signs of incoming ramp up yet from our channel checks." -- Maybank analyst Jarick Seet Bottom Line While Frencken faces short-term hurdles due to uneven semiconductor recovery and softer performance in certain segments, all three analysts agree that its long-term prospects are bright. With AI and other emerging technologies driving demand for semiconductors, Frencken is poised to capitalize on this growth wave—making it a stock worth watching as the industry rebounds.

» UOB's report is here.
» Maybank's is here.
» CGS's is here.