Frencken Group - CGS-CIMB Research 2022-07-04: Overcoming Short-Term Challenges

Frencken Group - Overcoming Short-Term Challenges

  • In 1Q22, Frencken (SGX:E28)’s gross profit margin (GPM) & net profit margin (NPM) were 15.4% & 6.5%, versus 17.2% & 8.1% in 1Q21, mainly due to higher raw material prices, higher cost to mitigate supply chain disruptions, and higher operating costs from inflation. We expect the 1Q22 margin pressure to continue into 2Q22F but improve in 2H22F.
  • Frencken's management has guided that new orders from customers will reflect the current cost environment and its internal efforts to lower operating expenses will also help defend/improve 2H22F margins.
  • For the automotive segment, the backlog arising from supply chain disruptions in 1H22F could help 2H22F performance as production resumes momentum.
  • We see good growth prospects for Frencken in its semicon business segment (38% of 1Q22 group revenue). Frencken has expanded its cleanroom facilities in Europe, Malaysia, Singapore, and the US, while new and larger premises in the Netherlands, Malaysia, and Singapore are expected by management to be completed in 1H22F.
  • Frencken had a net cash position of S$72.8m at end-Mar 22. In Sep- 21, Frencken acquired Singapore-incorporated Avimac Pte Ltd for S$14m and in Jan 22, Frencken acquired Malaysia-incorporated Penchem Technologies Sdn Bhd.
  • We cut FY22-23F gross profit margin forecast for Frencken by 0.25-0.40% points reflecting 2Q22F margin pressure before recovery in 2H22F leading to 2.8-4.8% decreases in our earnings per share forecasts. We reiterate ADD rating on Frencken but our target price for Frencken is lowered to S$1.72 (previously S$1.77) given the earnings cut.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @

William TNG CFA CGS-CIMB Research | 2022-07-04
SGX Stock Analyst Report ADD MAINTAIN ADD 1.72 DOWN 1.770

Previous report by CGS-CIMB:
2022-05-18 Frencken Group - Striving To Defend Margins

Target prices by 4 other brokers at Frencken Target Prices.
Listing of broker reports at Frencken Analyst Report.

Relevant links:
Frencken Share Price History,
Frencken Announcements,
Frencken Dividends & Corp Actions,
Frencken News Articles


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