Frontken Corp. Bhd: Comprehensive Financial Analysis

Prepared by: Maybank Investment Bank Berhad

Date: February 18, 2025

Introduction to Frontken Corp. Bhd

Frontken Corp. Bhd (FRCB), a leading player in engineering and precision cleaning services, primarily caters to the semiconductor and oil & gas (O&G) markets in Taiwan, Singapore, and Malaysia. With its robust operations, FRCB is strategically positioned to leverage opportunities in these sectors. Despite a recent sharp correction of about 19% in its share price since December 2024, the company remains a compelling investment opportunity.

Investment Recommendation: A Strong Buy

Maybank Investment Bank Berhad maintains a “BUY” recommendation for FRCB, with a 12-month target price of MYR 4.95. This valuation is based on 41x FY25E PER, reflecting a +0.5SD premium to its 5-year mean, justified by its exposure to Taiwan’s leading wafer fabrication market. The current trading price of MYR 3.69 offers a promising upside potential of 35%, making it an attractive proposition for investors.

Business Performance Across Key Markets

Frontken’s core operations in Taiwan (TW), Singapore (SG), and Malaysia (MY) are performing well. The semiconductor segment in Taiwan achieved record revenue in 3Q24, with robust activity levels continuing into 2025. In Singapore, key wafer fab customers project stronger run-rates for 4Q24 and 1H25. Meanwhile, operations at the Kulim plant in Malaysia have fully recovered after a plant fire in November 2024.

Exploration of Value-Accretive Acquisitions

The company is evaluating the acquisition of a US-based firm for approximately USD 40-50 million (MYR 177-221 million). This deal is expected to be internally funded, supported by FRCB’s healthy net cash reserves of MYR 367 million as of end-3Q24. If finalized by 1Q25, the acquisition could uplift FRCB’s FY25E and FY26E earnings by 7-9% and 8-10%, respectively. The acquisition aligns with FRCB’s strategy to bolster its long-term growth prospects.

Downside Risks and Contingency Measures

Potential risks include macroeconomic uncertainties, such as US tariff threats, inflation, and weak global demand, which could impact semiconductor volume loading in FRCB’s key markets. However, these risks are expected to be mitigated by the successful execution of the aforementioned acquisition. Failure to close the deal or a weaker-than-expected FY25 demand outlook could serve as potential derating catalysts.

Financial Performance Overview

Price Performance and Valuation

Frontken’s share price has fluctuated between MYR 3.50 and MYR 4.74 over the past 52 weeks. The stock is currently trading at a forward PER of 30x FY25E, which is attractive compared to its 5-year forward PER mean of 36x. The company also offers a modest net dividend yield of 1.0% for FY25E, indicating its commitment to shareholder returns.

Environmental, Social, and Governance (ESG) Highlights

Frontken scores 65/100 on the ESG assessment, reflecting above-average performance. The company aligns with 12 out of 17 UN Sustainable Development Goals (SDGs) and has made strides in environmental conservation. In FY23, it generated 906,036 kWh of green energy, recycled 460,807 kg of waste, and achieved a 98.0% employee retention rate. Key governance practices include a 50% composition of independent directors and a dual-role CEO/Chairman, which the board believes does not concentrate power.

Key ESG Metrics

• Environmental: Solar panel installations, energy-saving initiatives, and a 15% annual water conservation target at its Taiwan plant.
• Social: Employee training hours totaled 20,993 in FY23, with an injury rate of just 0.01 hours per 100 employees.
• Governance: The board comprises six directors, with a 50% representation of independent directors and 33% female representation.

Quantitative ESG Performance

Conclusion

Frontken Corp. Bhd stands out as a resilient and forward-looking player in the semiconductor and O&G sectors. Despite sectoral challenges, the company’s robust financial health, promising growth trajectory, and strong ESG initiatives make it a compelling investment. With a 35% upside potential to its target price of MYR 4.95, investors are encouraged to accumulate on weakness and capitalize on its growth story.