Frontken Corporation Berhad - 2Q25 posts highest-ever quarterly topline and CNP
Wed, 06-Aug-2025 08:19 am
by Jayden Tan • Apex Research

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FRONTKN (0128)

Target Price (RM)

5.36

Recommendation

Buy

Results within expectations. Frontken posted a 2QFY25 CNP of RM47.9m after excluding a RM14.44m forex impact (inclusive of tax) arising from the revaluation of USD holdings initially earmarked for a US company acquisition, which was called off at the last minute by the vendor. This brought 1HFY25 CNP to RM79m, making up 44% of our full-year forecast and 45% of consensus, broadly in line as we anticipate a stronger 2H performance.

 

Dividend. The board declared a dividend of 2.0 sen/share (2Q24: 1.7 sen).

 

YoY. CNP grew 43.8%, alongside a 16% increase in revenue to RM156.4m, marking the highest-ever quarterly topline and bottom line. This was mainly driven by Taiwan semiconductor operations (Core operating profit +54% yoy), supported by sustained robust demand in AI and HPC, as well as the addition of new lines across Plant 1 and Plant 2. Meanwhile, Malaysia rebounded significantly, with profit surging 612.5% yoy to RM4.9m from a subdued 2Q24 (RM0.7m).

 

QoQ. CNP rose 54%, supported by an 18% increase in revenue, with strong contributions from Taiwan (Core operating profit +42% qoq) and a 10ppt margin improvement, reflecting an enhanced product mix and improved operating leverage.

 

Operational & strategic updates. Management remains committed to pursuing M&A opportunities in the US following the aborted acquisition of a previous target, though near-term efforts will remain focused on Taiwan, supported by strong advanced-node demand from key customers. After acquiring a new parcel of land, Frontken plans to develop Plant 3, an 8-storey facility, with construction (based on our assumptions) expected to commence in FY26 and complete in FY27 to meet anticipated demand. This expansion is aligned with its key Taiwanese customer’s capacity growth plans, while Frontken has initiated R&D efforts to support nodes beyond 2nm (including 1.6nm and future 1.4nm). Additionally, the Group increased its stake in its Taiwan subsidiary by 0.9% for RM14m, raising its shareholding to 93.4%. In Singapore, the plant has completed preliminary qualifications for a new customer and is in the final qualification stage, with full qualification expected by Sep 2025.

 

Outlook. We expect 2H performance to outpace 1H, supported by seasonal strength and new customer ramps in Taiwan and Singapore. Demand from Frontken’s key Taiwanese customer remains strong, backed by its extensive expansion plans (11 fabs over the next several years) and robust AI/HPC-driven demand. Malaysia and Singapore operations are also set to improve further with new customer prospects.

 

Earnings Revision. We have revised our FY25F earnings slightly higher by 0.6% to reflect the additional 0.9% stake acquisition in the Taiwan subsidiary. Meanwhile, FY26F earnings have been raised by 22%, driven by a technical adjustment to incorporate interest income from the cash proceeds of the full conversion of 510 mil outstanding warrants (Frontken-WB) at RM4.00 each, which would raise approximately RM2.04 bil in equity, assuming a 3% p.a. return on these proceeds.

 

Valuation. Despite EPS dilution (from 12.6 sen/share to 11.7 sen/share) from the enlarged share base post-warrant conversion, we view the RM2.04 bil cash inflow as value-accretive, strengthening Frontken’s balance sheet and enhancing its strategic flexibility for capacity expansion or accretive M&A. Reflecting these improved fundamentals and sustained earnings visibility, we revise our PER assumption to 46x FY26F (from 35x), aligning with its 5-year historical mean (from previously -1 standard deviation). This results in a higher TP of RM5.36 (from RM4.42). We maintain our BUY call, underpinned by Frontken’s robust net cash position, premium margins, and strong growth prospects in advanced-node servicing.

 

Risk. Forex fluctuations, particularly in Taiwan, could affect reported revenue. In addition, the lingering risk of Trump-era tariffs may undermine fab investment confidence.

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