We project Frontken’s 3QFY25 core earnings to come in at the range of RM55-60m (+4% to +14% QoQ, +53% to +67% YoY), bringing 9MFY25F sum to RM138m-143m (+46% to +51% YoY), led by customer’s process nodes advancement and high fab utilisation.
Reintroduced FY25/26F earnings forecasts at RM183m/RM215m, representing adjustments of +2%/-12% versus our previous forecasts. Also, we introduce FY27F forecast at RM233m.
Maintain BUY rating but with a slightly lower TP of RM5.18, based on PE multiple of 38x on revised FY26F core EPS of 13.6 sen.
Results preview. We project Frontken’s 3QFY25 core earnings to come in at the range of RM55-60m (+4% to +14% QoQ, +53% to +67% YoY), bringing 9MFY25F sum to RM138m-143m (+46% to +51% YoY). This represents 75%–78% of our revised full-year forecast.
Customer T entering 2nm mass production by end-25. Located in Kaohsiung (Fab 20) and Hsinchu (Fab 22), two 2nm process production plants by Customer T are preparing for mass production by end-25 with the target of achieving 100k wafers per month in 2026. Despite currently under pilot manufacturing stage, Customer T’s 2nm capacity has reportedly been fully booked out for the entirety of 2026. This reflects persistent demand-supply tightness in advanced nodes, supporting Customer T’s continued growth trajectory. Evidently, Customer T reported a total revenue growth of 36% YoY in 9MFY25 to TWD2,763bn, boosted by robust orders for advanced processes (≤7nm) from AI/HPC applications.
Still room for margin expansion. Given Customer T’s continued advancement in process nodes and sustained high fab utilisation, we expect Frontken to continue benefitting from the positive spill-over effect through burgeoning demand for advanced precision cleaning of front-end wafer fab equipment. With 2nm processes poised to enter mass production, the frequency and complexity of component cleaning are set to intensify due to heightened sensitivity to contamination. As such, this augurs well for Frontken’s pricing power as more sophisticated cleaning techniques will be required for tighter contamination control, thereby supporting further margin expansion in the coming quarters.
Capacity expansions on the horizon. To cater to the insatiable demand for advanced-node precision cleaning, AGTC has recently added new lines at both its P1 and P2 facilities in Taiwan. In addition, it acquired a 3.8k sqm plot of land near P1 for RM23m in 1Q25 to develop its third plant (P3). Management previously highlighted that P3 will be substantially larger than P1 and P2, featuring a multi-storey layout to accommodate future capacity growth. Separately, Customer T’s ongoing expansion in the US offers another long-term growth avenue for Frontken. Fab 1 in Arizona has already commenced volume production on 4 nm processes since 4Q24, while Fab 2 (2 nm/3 nm) and Fab 3 (2 nm/A16) are slated to be operational by 2030. Currently, Customer T ships back certain parts to Taiwan facilities for servicing. Management indicated that it is exploring potential partnerships in the US to support Customer T’s operations, while not ruling out a greenfield expansion should the volume justify the required investment. We note these developments have yet to be imputed in our forecasts.
Forecasts. With the change in analyst, we have revamped our financial model and reintroduced FY25/26F earnings at RM183m/RM215m, representing adjustments of +2%/-12% versus our previous forecasts. Also, we introduce FY27F forecast at RM233m. Frontken is scheduled to release its 3QFY25 results by the end of this month.
Valuation. We maintain BUY rating but with a slightly lower TP of RM5.18, based on PE multiple of 38x on revised FY26F core EPS of 13.6 sen. Our ascribed PE multiple represents +0.5SD above Frontken’s 5-year historical average PE of 35x.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.212894 | 4.246402 |
EUR | 4.925348 | 4.934954 |
CNY | 0.592662 | 0.593823 |
HKD | 0.542079 | 0.546393 |
SGD | 3.250847 | 3.276896 |