Hot stock: Frencken rises over 10% after H1 results release

SHARES of Frencken Group spiked on Tuesday (Aug 15) following the semiconductor and machine manufacturer’s release of its financial results for the first half year ended Jun 30. 

As at 10.27 am, the counter was up as much as 10.4 per cent or S$0.085 to S$0.905. About 10.9 million of its securities had changed hands at the time, well above the 4.8 million average and making it the fifth most actively traded stock in terms of volume.

It further climbed to reach S$0.91, up S$0.09 or 11 per cent, as at 11.18 am with 12.5 million shares traded. 

No married deals were recorded in early trade, according to ShareInvestor data. 

Frencken’s share price movement comes a day after it posted a 53.8 per cent drop in net profit to S$12.1 million for H1, from S$26.1 million in the same period last year.

Analysts, however, expect better days ahead for the group, with many raising their target prices on the stock on expectations that its share price has bottomed out.  

UOB Kay Hian (UOBKH) on Tuesday upgraded its call to “buy”, while raising its target price to S$1.00 from S$0.78. 

The new target price represents a 21.5 per cent upside, according to the research house.

The higher target price came as a result of UOBKH rolling over its valuation base year to reflect Frencken’s earnings cycle, which the research house believes is “approaching a trough” as the company is due to see an improvement in earnings quality.  

Analyst John Cheong said he foresees more contributions from the group’s medical as well as analytical and life sciences segments. 

He noted that Frencken expects stable revenue in the second half of 2023 despite its cautious view for its full-year outlook. 

“Frencken has a diverse stream of revenue sources, which could help the company remain resilient amid a volatile macro environment.”

The expectation for stable revenue is further supported by the fact that Frencken is seeing more new business opportunities in Asia, especially in Malaysia.

In comparison, Maybank Securities revised upward its target price on Frencken to S$0.97 from S$0.94, while maintaining its “buy” call.

According to analyst Jarick Seet, Frencken’s profit after tax and minority interests (Patmi) for Q2 2023 was ahead of Maybank’s estimate by 54 per cent. Maybank has since raised its projected Patmi by 12.6 per cent for FY2023, and by 3.4 per cent for FY2024, pushing up the target price. 

Regarding Frencken’s core business segment, semiconductor, Maybank agrees with Frencken’s management that “the worst is likely over” and revenue will start to pick up. 

“We believe its key customer’s inventory level has been dwindling and it has started to increase orders,” said Seet on Monday. 

He also pointed out that Frencken is one of the few semiconductor stocks that is trading below its net asset value, and it is likely that most of the negatives are already priced in. 

“Management is well-positioned to take advantage of a rebound in demand when this happens. Frencken should continue to gradually improve in subsequent quarters... as we think semiconductor has bottomed for Frencken, we maintain ‘buy’.”