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Frontken to gain from semiconductor upcycle and new capacity

by S BIRRUNTHA / pic by BLOOMBERG

FRONTKEN Corp Bhd’s long-term growth prospects which are underpinned by the semiconductor industry’s accelerating upcycle and its ongoing expansion in Taiwan continue to keep analysts interested in the company.

Maybank Investment Bank Bhd (Maybank IB) has maintained its ‘Buy’ call on Frontken with a higher target price (TP) of RM4.30 from RM3.90 previously due to the above reasons.

The investment bank made no changes to its earnings forecast on Frontken after its nine months ended Sept 30, 2020 (9M21) core net profit came in-line with Maybank IB’s financial year 2021 (FY21) core earnings estimates.

“Frontken’s new 118,000 sq ft Taiwan plant (potentially doubling long-term capacity) is set to be operational by the second half of 2022 (2H22). Our model has yet to factor in earnings growth from this venture, pending operational visibility.

“With its key Taiwanese customer also pledging US$100 billion (RM416 billion) for capacity expansion through to calendar year 2024, we opine that Frontken is well-placed to ride the semiconductor industry’s relentless upcycle,” the Maybank report on Frontken stated.

Frontken’s new Pengerang facility will help catalyse domestic earnings growth from FY22 onwards, in-line with the start-up of Petronas’ International Petroleum Corp towards the end of the fourth quarter of 2021 (4Q21).

Frontken registered a net profit of RM27.3 million for 3Q21, a 27.94% jump year-on-year (YoY) on higher revenue from both of its semiconductor, and oil and gas (O&G) related businesses.

Quarterly revenue rose 23% YoY to RM116.59 million underpinned by the significant contributions from its subsidiaries in Taiwan and Malaysia.

According to Frontken, its Taiwan semiconductor business continues to show significant growth in the quarter under review mainly due to the strong demand from its customers’ industry-leading advanced nodes chips.

The improvement in its local business was largely due to new orders for provision of manpower supply and mechanical rotating equipment services from various contracts the group has with the Petronas group of companies.

Its subsidiary in Singapore recorded a slightly lower revenue in the quarter mainly due to shortage in workforce and delay in customers’ orders attributable to Covid-19 safety measures implemented by the Singapore government, its exchange filing stated recently.

For the 9M21, Frontken’s net profit rose 27.74% YoY to RM74.96 million while revenue rose 22.99% YoY to RM328.73 million.

Frontken is cautiously optimistic of its prospects amid the encouraging business developments while higher demand and strong orders from one of its customers’ advanced node chips has benefitted the company’s semiconductor business.

Maybank IB found that Frontken’s 3Q results were largely in-line with expectations and it expects the 4Q to be sequentially stronger as per its historical 2H performance in prior years.

The bank noted that there are several risk factors to Frontken’s earnings estimates, TP and rating for Frontken.

This includes a potential sharp downturn in the global markets for electronics and/or O&G which will affect the demand for Frontken’s services.

Additionally, foreign exchange volatility, especially the US dollar/ringgit pair, will affect Frontken’s earnings as about one fifth of the group’s revenue is denominated in the greenback.

Zukri

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