Frencken Group - DBS Research 2023-11-23: Improving Margins & Outlook; Upgrade To BUY

• Frencken (SGX:E28) reported 3Q23 revenue of S$184.4m (-5.6% y-o-y, +3% q-o-q). Though the gross profit margin contracted to 12.4% from 13.7% in 3Q22 due to lower revenue, inflationary cost pressures, and increased depreciation expenses, as Frencken continues to upgrade and expand its global manufacturing facilities, it is still a shade better than the 12.3% in 1H23.

3Q23 revenue in line but net profit above expectations

• - Read this at SGinvestors.io -

Segmental performance – Semiconductor saw strong recovery q-o-q:

• Semiconductor – revenue decreased 10.5% y-o-y to S$74.6m.
  • Europe saw higher orders from a key semiconductor equipment customer, but this was insufficient to fully compensate for lower sales in Asia, which was affected by the industry slowdown.
  • - Read this at SGinvestors.io -
• Medical – revenue increased 19.5% y-o-y, mainly due to higher sales to a significant customer in Europe.
• Analytical & life sciences – higher sales in Europe and Asia have led to the 22.4% y-o-y increase in revenue.
• Industrial automation – the significant y-o-y decline of 63.5% in revenue was mainly due to the lower capital expenditure requirement of a key customer.
• Revenue of the Integrated Manufacturing Services (IMS) division dipped marginally by 5.7% y-o-y to S$24.3m in 3Q23, mainly due to lower sales in the automotive and consumer & industrial electronics segments.

Sequential improvement in net margins; expect continued recovery from trough margin of 3% registered in 1Q23.

• Read more at SGinvestors.io.

Lee Keng LING DBS Group Research | https://www.dbs.com/insightsdirect/ 2023-11-23 SGinvestors.io

---