Brokers' take: Analysts mixed on Frencken as Q3 earnings miss consensus forecast

ANALYSTS are mixed on mainboard-listed Frencken Group after the integrated technology solutions company posted a lower than expected revenue and net profit in its third-quarter business update on Nov 11.

CGS-CIMB on Friday (Nov 12) downgraded Frencken to "hold" from "add", pending further updates from Frencken's management on the company's FY2022-23 outlook.

The research team has also lowered its target price to S$2.44 from S$2.49, representing a 2.5 per cent upside from the counter's trading price of S$2.38 as at 3.03 pm on Monday (Nov 15). Frencken's shares were down 2.5 per cent or S$0.06 at the time.

RHB, meanwhile, has maintained "buy" on the counter with a higher target price of S$2.64 from S$2.55, representing an upside of 10.9 per cent. It justifies its "buy" call based on a price-to-earnings ratio of 16 times, from 15 times previously, according to a report on Monday (Nov 15).

The RHB research team continues to view Frencken as a good proxy for the semiconductor industry and believes fiscal 2021 to be a strong year for the group as both its semiconductor and medical divisions should boost profits.

"We believe there is also further room for Frencken's share price to grow, as its peers are trading at higher valuations," RHB said. It added that it is also positive over Frencken's long-term prospects and its management team.

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As a whole, the group's results were slightly below expectations for both research teams. Third-quarter revenue was at 25 per cent of CGS-CIMB's forecast and 26 per cent of Bloomberg's consensus full-year forecast.

Meanwhile, the group's Q3 net profit of S$14.8 million was slightly below at 23 per cent of CGS-CIMB or consensus FY2021 forecasts versus a 3-year average of 26 per cent.

Both CGS-CIMB and RHB have also downgraded their Frencken earnings forecasts. RHB has downgraded its earnings forecast for FY2021 and FY2022 by 6 per cent and 2 per cent respectively.

Meanwhile, CGS-CIMB has cut its projections for FY2021 revenue and net profit by 2.9 per cent and 6.1 per cent respectively. It expects Frencken's net profit for the fourth quarter of 2021 to decline 4 per cent quarter on quarter.