Frencken Group Ltd

[GreedandFear]

Frencken produces machinery for the industrial sector. Main sectors sold to are Semiconductors, Medical, Industrial Automation, Analytical, Office Automation, Automotive and Consumer and Industrials. Market cap (at current price of 27.5 cents) is $111MM. Befitting its sector, the company is volatile but I am vested for the following reasons :

1. It provides a good exposure across a number of different manufacturing industries to a global recovery
2. It is a turn-around story. 2012 saw a net loss of $11.7MM. YTD, net income is $14.3MM. The turn-around has been helped by the acquisition of a Dutch company called Juken which has increased Frencken's sales in existing segments and also added Automotive which is doing well. 2012 results were also made worse by a number of write-offs so 2013's performance is flattered by comparison
3. Annualising 9 months YTD EPS results in EPS of 4.67 cents versus share price of 27.5 for an undemanding 5.7x PE.
4. Frencken has, historically, paid 25-30% of net income as dividends, so we could potentially be looking at a 4-5% dividend yield for 2013.
5. The company serves a number of different industrial sectors so there is some "portfolio cushioning" if one sector underperforms.
6. The company is significantly exposed to EUR sales (50%+) so FX is a factor.

Revenues
2012 full year : $360MM
2013 9 months : $335MM

Gross Profit
2012 full year : $31.6MM
2013 9 months :$51.5MM

PBT
2012 full year: ($5.5MM)
2013 9 months: $18.8MM

EPS
2012 full year : (-3.16) cents
2013 9 months : 3.50 cents

Sector Sales (9 mths YTD)
Semi conductors : $36.4mm
Medical : $46.2MM
Analytical : $65.3MM
Industrial Automation : $34.7mm
Office Automation : $22.5MM
Automotive : $73.4MM
Consumer and Industrial Electronic Products : $20.3MM
Others : $36.5MM

I am not an industry specialist so would welcome feedback.

Vested.

[felixleong]

May i know whats the price to book value? Also does this company take on any debt, hows the balance sheet, like how much gearing?

[GreedandFear]

May i know whats the price to book value? Also does this company take on any debt, hows the balance sheet, like how much gearing?

Debt of $84mm
Cash of $27mm
Net Operating Cash Flow (9 months) of $16mm
NAV of 50 cents
Intangble Assets of $18mm so lets say that 4-5 cents of the NAV is intangibles
Share price 27.5 cents

[felixleong]

so they have about 18-19 cents worth of debt per share? seems quite leveraged

[GreedandFear]

so they have about 18-19 cents worth of debt per share? seems quite leveraged

On a gross debt basis - yes. On a net of cash basis, debt is $57mm or about 14 cents. Net debt to annualised operating cash flow is a bit under 3x which is manageable but I agree that this is not a debt free company so there is some risk. I would note that the debt is mainly from the Juken acquisition in late 2012. As of Dec 2011, the company only had $23mm of debt and cash was more than $30mm so debt free on a net basis. Hopefully, they will repay debt given the strong performance this year.

[level13]

For those forummers who are short of time, the following link is a sweet and short presentation of who & what Frencken Group is all about.

http://infopub.sgx.com/FileOpen/Frencken...eID=270794

This perhaps can give us a clue on the yet to be released FY2013 earnings result. On slide 21, one can see that management has forecasted a profit of about $14 mil, which confirmed that its fortunes has turned around in FY2013.

On slide 22, they have indicated that for the past years, the dividend payout ratio is minimum 30% based on full year EPS. For FY2013, the estimated EPS is around 3.5 cents. Going by the same rate, one can expect a upcoming dividend of at least 1.2 cents. This translates to a yield of approximately 4% based on today's closing price of $0.305.

Vested.

[GPD]

For some reasons, this company's name always appeared as "fried chicken" in my mind.

Seems like a turnaround story.

(not vested)

[nsengkia]

For those forummers who are short of time, the following link is a sweet and short presentation of who & what Frencken Group is all about.

http://infopub.sgx.com/FileOpen/Frencken...eID=270794

On slide 21, one can see that management has forecasted a profit of about $14 mil, which confirmed that its fortunes has turned around in FY2013.

I think the management is reflecting the 9 month profit of about $14 million. The FY2013 profit should be higher.

Cheers!

[GreedandFear]

Nice pop to 32 cents after OSK initiate coverage with a target price of 45 cents.

Frencken, a high-tech contract manufacturer, is now a monster of a bargain owing to previous missteps that we think are a now thing of the past. The company designs and manufactures capital and consumer equipment for businesses. It also offers one-stop services along the entire value chain, ie from initial product design, development and prototyping, to engineering, final testing and series manufacturing. With revenue growth, improved production efficiency and yield rate, we expect the company’s FY14 profits to surge 30%. Given its: i) turnaround, ii) future growth catalysts, iii) diversified blue chip clients (Phillips, FEI, Siemens), and iv) attractive dividend yield (4.5%/5.2% FY13/14), we believe this 60-year-old firm is primed for growth. Initiate coverage with a BUY and SGD0.45 TP, based on 9x FY14F P/E.

[GreedandFear]

updated report from OSK. As mentioned in the report, Frencken is trading at half the PE of Amtek and with substantially less debt.

https://sites.google.com/site/researchre...032014.pdf

(vested).