Frontken recorded 3Q25 core net profit of RM41.6m (-21% QoQ, +16% YoY), bringing its 9MFY25’s sum to RM124.6m (+32% YoY) – slightly below our (68%) but broadly within street (71%) expectations.
Core net profit was down 21% QoQ as net margin shrunk by c.8.1%-pts, weighed by higher overheads arising from increased headcount and staff incentive accruals, coupled with relocation expenses for the transfer of its TFT/LCD cleaning lines from P1 to P3.
With the installation of new specialised tool cleaning lines in P2 by end-2025 and additional advanced cleaning lines in P1 by 1H26, we expect the group’s revenue and earnings to hit yet another record high in FY26, driven by higher capacity and ASP escalation (through handling more complex and critical components).
We slightly trimmed our FY25F earnings by 3.5% but keep FY26/27F forecasts unchanged; maintain BUY rating with unchanged TP of RM5.18, based on PE multiple of 38x on FY26F core EPS of 13.6 sen.
Slight miss. Frontken recorded 3Q25 core net profit of RM41.6m (-21% QoQ, +16% YoY), bringing its 9MFY25’s sum to RM124.6m (+32% YoY) – slightly below our (68%) but broadly within street (71%) expectations (4Q typically the strongest quarter). The shortfall was attributed to higher-than-expected overhead costs stemming from staff incentive accruals and relocation expenses related to the transfer of TFT/LCD cleaning lines from P1 to P3. 3QFY25 results were arrived after deducting net forex gain of RM4.2m.
QoQ. Despite slightly higher revenue (+3.5%) thanks to better contribution from Taiwan’s subsidiary AGTC (+1.9%), core net profit was down 21% as net margin shrunk by c.8.1%-pts, weighed by higher overheads arising from increased headcount and staff incentive accruals, coupled with relocation expenses for the transfer of its TFT/LCD cleaning lines from P1 to P3.
YoY/YTD. Core net profit rose 16% YoY/32% YTD owing to stronger revenue contribution from AGTC (+18% YoY/+16% YTD) due to robust demand and improved product mix (higher share of advanced node cleaning) from its key foundry customer amidst surging orders for AI accelerators. However, it was partially offset by weaker showing from Singapore (revenue -19% YoY/ -18% YTD) due to slowdown in its oil and gas division.
Lumpy overheads in 3Q25. AGTC’s overhead cost ballooned in 3Q25 due to (i) increased headcount to support capacity expansion in preparation for higher activity level in 2026, (ii) staff incentive accruals and (iii) expenses for relocating its TFT/LCD cleaning lines from P1 to P3 to make room for new advanced semiconductor cleaning lines (completion by 1H26). While the relocation amount was not disclosed, management indicated that the bulk of the cost had already been recognised in 3Q25, with some spillover expected into 4Q25. Additionally, part of the staff incentive accruals may be reversed in 4Q25 should the final payout be lower than initially estimated. As such, we expect overhead pressures to ease from 4Q25 onwards, supporting sequential earnings growth on the back of seasonally stronger revenue and margin normalisation.
All eyes on FY26. With the installation of cleaning lines for new specialised tools in P2 by end-2025 (for which AGTC is the sole qualified cleaner) and additional advanced cleaning lines in P1 by 1H26, we expect the group’s revenue and earnings to hit yet another record high in FY26, driven by higher capacity and ASP escalation (through handling more complex and critical components). Management alluded that the additional capacity will be fully absorbed upon commissioning, reflecting the robust demand from its key foundry customer amid the ramp-up of 2nm process nodes through 2026.
Exploring multiple M&A opportunities. To establish a foothold in the US, we understand that Frontken is evaluating several US-based JV/M&A opportunities. These include (i) a possible JV with a US-based precision cleaning player with presence in US, Japan and Europe, (ii) an acquisition target that specialises in supplying dry-cleaning materials to mutual customers, as well as (iii) a larger-scale acquisition opportunity (>RM1bn), for which details remain undisclosed. These transactions would be earnings-accretive and strategically position the group to capitalise on the wafer fab expansion drive in the US. In our view, Frontken’s strong net cash position of RM567m, coupled with the upcoming c.RM2bn proceeds from warrant conversions provide ample financial headroom to pursue these opportunities.
Forecasts Revision. We trim our FY25F earnings by 3.5%, reflecting a slightly more conservative margin assumption to account for the higher-than-expected overhead costs incurred in 3Q25. Nonetheless, we keep our FY26/27F forecasts remain unchanged.
Valuation. We maintain BUY rating but with unchanged TP of RM5.18, based on PE multiple of 38x on 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 | 4.174479 | 4.203774 |
| EUR | 4.846609 | 4.851557 |
| CNY | 0.588374 | 0.588963 |
| HKD | 0.537188 | 0.540958 |
| SGD | 3.209459 | 3.232042 |