RHB Research on Monday (Sep 11) raised its target price on Frencken Group : E28 0% to S$0.97 from S$0.80 in view of the semiconductor industry’s expected recovery for next year.

The new target price for the group incorporates rolled-over FY2024 estimates from a blended earnings for FY2023 and FY2024, with a price-to-earnings multiple of 10, said the brokerage’s analyst, Alfie Yeo.

Despite the higher price target, it remains under the counter’s current levels. As at the midday trading break on Monday it was down S$0.01 or 1 per cent to S$1.01.

Yeo is also cognisant of risks that remain for the sector, noting how Frencken’s H1 earnings fell short of RHB’s estimates due to lower margins and higher-than-expected costs.

“We await a firmer recovery of electronics demand and chip inventory correction, which will ultimately drive a pick-up in fab utilisation and sales for Frencken Group,” he said.

While he cut the group’s net profit forecast for FY2023 by 17 per cent, overall earnings projections for FY2024 to FY2025 have been raised by 17 per cent for each fiscal year upon pricing in an expected longer-term recovery.

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Yeo said that although he expects the industry to recover “sometime next year” on the back of improved electronic sales, he remains cautious on electronics demand recovery and the pace of inventory drawdown.

These factors could potentially delay the recovery pick-up in fab utilisation and affect the semiconductor and machine manufacturer group’s growth momentum for FY2024.

“Nonetheless, we expect the group’s H2 FY2023 revenue to be comparable with H1 2023, in line with chip inventory correction which is still at play,” said Yeo.

He expected revenue for its semiconductor and life sciences segments to pick up in H2 2023 and also anticipated “stable revenue” from the medical and automotive segments.

“However, the industrial automation segment’s revenue is anticipated to decline,” he said. 

The brokerage maintained its “neutral” call for the mainboard-listed group, citing a mixed near-term outlook, near-term recovery risks, and a “slightly lofty” valuation that remains half a standard deviation above its five-year historical mean.