Frencken - RHB Invest 2024-02-29: More Positive Ahead Of The Recovery; Maintain BUY

• We turn more positive on Frencken (SGX:E28) after 2H23 earnings showed a continued sequential improvement, supporting our earnings recovery thesis. A stronger 2H23 led to FY23 earnings outperforming our estimates by 18% on recovering semiconductor orders and outlook.

FY23 beats our forecast.

• - Read this at SGinvestors.io -
• An increase in key semiconductor customer orders helped drive the segment’s growth. This leads us to believe that an earnings recovery is underway and a more pronounced recovery will take place from FY24.
• - Read this at SGinvestors.io -

The semiconductor segment driving a more positive outlook.

• FY23 earnings have outperformed our estimates on order acceleration in the semiconductor segment. We expect improving revenue trends to continue, as Frencken’s key European customer continues to grow and expand into Asia. We believe this customer could be building up inventory for a near-term ramp-up over a number of systems and is ordering ahead as it needs some lead time ahead of its systems’ launches.
• In the longer term, Frencken also has a new semiconductor customer that is supporting its utilisation in Asia. Additionally, a positive revenue outlook will be supported by the medical segment, in our view, where topline is also set to increase on more robust customer orders.
• Other segments such as analytical & life sciences (customer diversification and strengthening supply chain into Asia) and automotive (expansion into intelligent city with radar antenna products) are expected to register a stable revenue outlook.
• Meanwhile, industrial automation is set to decrease, as the segment’s key customer there is not expected to undertake major capital expenditure.

Earnings forecast & target price

• Read more at SGinvestors.io.

Alfie Yeo RHB Securities Research | https://www.rhbgroup.com/ 2024-02-29 SGinvestors.io

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