Frencken Group - DBS Research 2024-08-19: Optimistic Outlook, Semiconductor Shines

• Frencken (SGX:E28) reported 1H24 revenue of S$372.7mil, up 6.2% y-o-y, mainly driven by the 27.8% gain in revenue for the key semiconductor segment accounting for 42% of total revenue. The stellar performance was attributable to the increased orders from a key customer in Europe and a recovery in sales from Asia operations.
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• The industrial automation division remained weak, down 60% y-o-y, due to a significant slowdown in orders from a key customer in data storage solutions.

Margin improvement on better operating leverage; net profit remains slightly below expectations.

• Frencken's gross profit margin expanded to 14.8% in 1H24 (from 12.3% in 1H23), mainly due to better operating leverage. Net profit for 1H24 jumped 50.3% to S$18.1mil. Net margin of 4.9% is an improvement from 3.4% in 1H23.
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Recovery intact for semiconductor.

• Semiconductor revenue is expected to register a 19.2% gain y-o-y in 2024, followed by another 16.7% increase in 2025, according to Gartner.
• SEMI expects the rebound in 2024 to persist and extend into 2026. The rebound is expected to be accompanied by wafer shipments reaching new highs and surges in demand for silicon, which would support AI, high performance computing (HPC), 5G, automotive, and various industrial applications.

Stable guidance for most segments; semiconductor still expected to be the star performer.

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Lee Keng LING DBS Group Research | https://www.dbs.com/insightsdirect/ 2024-08-19 SGinvestors.io

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