Frenken Group

Frenken Group: UOB Kay Hian has an unrated report, where the house notes that Frencken focuses on products with long lifecycle (5-10 years). As a result of the lengthy development process (at least two years) and stringent audit and qualification procedures to approve manufacturing facilities, barriers to entry are high and Frencken is typically the sole supplier for the product. With operations spread across Asia, Europe and the US, Frencken serves a group of blue-chip clientele, which includes major MNCs and tier-1 automobile parts suppliers. An euro zone recovery, slowly but surely. According to the European Automombile Manufacturers Association (ACEA), demand for new passenger cars in Europe increased for the eighth consecutive month in Apr 14, with a 4.6% yoy rise in registrations. While the euro zone grew only 0.2% yoy vs consensus of 0.4% in 1Q14, active measures have been taken by the European Central Bank to boost the recovery. It recently cut recent interest rates to a record low of 0.15%. Frencken derived more than 50% of its revenue from Europe in 2013. Serving cyclical sectors like automobile, Frencken is a good proxy for investors looking to ride on the cyclical economic recovery. After a loss-making 2012, net profit rebounded strongly to S$17.7m in 2013. The recovery momentum continued in 1Q14 as net profit rose 20.6% yoy to $3.8m, in tandem with a 3.4% yoy rise in revenue. For the last five years, Frencken had been paying out at least 30% of its earnings as dividends. Despite a loss in 2012, Frencken continued to reward shareholders with a dividend of S$0.005/share. A dividend of $0.014/share in 2013 translates to a yield of 3.8%. Frencken’s ability to pay out generous dividends is underpinned by its strong cash flow generation. Except for 2011 and FY12 when Frencken invested in new automation equipment to increase productivity and to acquire Junken Technology, the group has been generating strong positive free cash flow for the last 5 FYs.