Frencken Group - Maybank Research 2023-11-02: Positive Recovery Signals

• Qualcomm has just reported better-than-expected 4Q earnings and gave a much stronger forecast, pointing towards a potential recovery in the semi-con sector next year. Despite its key customer ASML expecting flat growth in FY24, we believe Frencken’s Malaysia factory utilisation should still benefit from ASML shifting some production from Europe to Malaysia.
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Expect q-o-q improvement in 3Q results

• We expect 1Q23 to be the bottom for Frencken and quarters ahead should likely be better q-o-q which it demonstrated in 2Q23.
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FY23 likely bottomed with recovery in FY24E

• Frencken's management concurs that the worst is likely over and it expects higher semi-con revenue for 2H23E than 1H23E. This is vital as semi-con contribution is crucial to its financial performance.
• We believe key customers have seen their inventory levels dwindle at a faster rate than expected, prompting them to raise their orders. Its key customer in Europe is also trying to move some production to Malaysia which we believe will likely benefit Frencken which has assisted the customer shift some production to Malaysia.
• We believe Frencken will likely win more market share from its European competitor despite its key customer expecting flat growth in FY24E.

Top Pick across our SG tech sector

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Jarick Seet Maybank Research | https://www.maybank-ke.com.sg/ 2023-11-02 SGinvestors.io

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