Frencken Group

Frencken Group: CIMB has an unrated report on the counter. The group believe Frencken could be worth more. Estimate that the stock could trade up to $0.44, based on 7.4x FY15 P/E (consensus FY15 EPS: 6 Scts), a 20% discount to its peers. This represents an upside potential of 19%, coupled with attractive dividend yields of 4.3% and 4.6% for FY14 and FY15 respectively. While earnings performance has historically been erratic in part due to the cyclical semiconductor industry and difficulties faced in integrating acquisitions, the challenges appear to have been overcome. CIMB believe the strong rebound in earnings for FY13 and 1Q14 is evidence of a turnaround, and expect revenue growth to be sustained due to its added capabilities and network in a growing industry. Frencken has consistently paid a 30% dividend payout from its earnings since listing. Even when the company posted a net loss in FY12, it paid a dividend of 0.5 Scts. Expect the payout ratio to remain steady in the years ahead. Shareholders should benefit from higher dividends in line with the expected growth in earnings.