Frencken - Maybank Research 2022-11-29: Rising Costs; Downgrade To SELL

• Downgrade Frencken to SELL from HOLD as we expect net margins to decline further due to rising costs.
• Soaring energy and labour costs reduced net margin and Frencken (SGX:E28)'s 3Q22 core PATMI was 4% below our estimate. And although some customers have agreed to share the added costs, we expect continued cost increases to further hamper margins and potentially even new orders, especially as winter is approaching.

Impacted by higher energy and labour costs

• - Read this at SGinvestors.io -
• - Read this at SGinvestors.io -

Sharing higher costs with customers

• Frencken's management is re-negotiating with customers to share the higher costs and pass on majority of its increased costs to its customers and we expect this to contribute positively in 4Q22. Some customers have already agreed to a more proactive approach in future with regards to managing the supply chain and operating cost.

Winter is coming

• Read more at SGinvestors.io.

Jarick Seet Maybank Research | https://www.maybank-ke.com.sg/ 2022-11-29 SGinvestors.io

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