Frencken - RHB Invest 2023-05-24: Awaiting The Semiconductor Recovery To Kick In

• We maintain our NEUTRAL call, as Frencken’s 1Q23 update indicated weak demand and higher operating costs amid on-going excess inventory in the chip sector. We see low utilisation rates from expanded capacities straining near-term margins, as the semiconductor market waits for inventory levels undergo a correction.
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1Q23 net profit was below our estimate

• Frencken (SGX:E28)'s 1Q23 net profit was below our estimate, at S$5.2m (-60% y-o-y). This was booked on a lower revenue of S$173m, marking a 13% y-o-y decline from 1Q22’s S$198m.
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• Meanwhile, revenue for the integrated manufacturing services division dropped by 10% y-o-y, as sales at both the automotive & consumer and industrial electronics segments declined.
• Frencken’s gross profit margin narrowed to 12.3% (-3.1ppts y-o-y). 1Q23 net profit plunged by 60% y-o-y to S$5.2m as a result of lower margins and higher costs.

Excess chip inventory continues to dominate sector trends.

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Alfie Yeo RHB Securities Research | https://www.rhbgroup.com/ 2023-05-24 SGinvestors.io

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