Frontken Corporation Berhad - Taiwan Subsidiary Stays the Course
Thu, 06-Aug-2026 07:17 am
by Research Team • Apex Research

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FRONTKN (0128)

Target Price (RM)

5.86

Recommendation

Buy

FRONTKN's 1HFY26 core net profit of RM88.0m (+2.0% YoY) accounted for 45% of our FY26F forecast and 44% of consensus estimates, which we deem in line given our expectation of stronger earnings in 2HFY26.

We remain bullish on FRONTKN's earnings trajectory into 2HFY26, underpinned by sustained AI-led demand at its Taiwan semiconductor subsidiary, including the broughtforward Plant 2 capacity expansion and continued ramp into its key foundry customer's 2nm node.

We maintain our FY26F/FY27F/FY28F core net profit forecasts of RM197.3m/RM206.8m/RM217.4m.

Maintain BUY with a higher TP of RM5.86 (previously RM5.71), based on a higher P/E of 46.2x (previously 45.0x), applied to FY27F core EPS of 12.7sen.

 

Results Inline. FRONTKN reported a 2QFY26 core net profit of RM49.1m (+26.4% QoQ, -7.1% YoY), after adjusting for forex loss (RM0.26m), fair value gains on short-term investments (- RM3.3m), gains on disposal of property, plant and equipment (-RM1.47m), and withholding tax (RM5.9m). This brought 1HFY26 core net profit to RM88.0m (+2.0% YoY). While 1HFY26 earnings accounted for 45% of our FY26F forecast and 44% of consensus estimates, we deem the results in line, as we expect earnings momentum to improve over the remaining quarters.

QoQ. Revenue eased 1.5% QoQ to RM186.9m, as softer Malaysia O&G supply-related sales were only partly cushioned by continued Taiwan semiconductor volume growth. Nevertheless, core net profit still rose 26.4% QoQ to RM49.1m (2QFY25: RM38.9m), driven by stronger Taiwan contribution.

YoY. Group revenue rose 19.5% YoY to RM186.9m, driven by a 106% YoY surge in Malaysia O&G supply-related activities and 7% YoY growth in Taiwan, combined with effective cost control. Core net profit, however, declined 7.1% YoY to RM49.1m (2QFY25: RM 52.9m), due to adjustment of exceptional items.

YTD. 1HFY26 revenue rose 30.4% YoY to RM376.7m, driven by broad-based growth across the Malaysia O&G (+177.6% YoY) and Taiwan semiconductor (+9.0% YoY) segments. Nevertheless, core net profit up 2.0% YoY to RM88.0m after adjusting for a RM4.3m fair value gain, RM1.5m disposal gain, RM0.96m forex loss and RM5.9m withholding tax.

Outlook. We remain constructively positive on the 2HFY26 outlook with multiple capacity expansion initiatives advancing in Taiwan. AGTC's TFT/LCD cleaning lines relocation remains on track for Q4 2026 completion, while additional cleaning lines at Plant 2 have been completed with qualification underway and commencement targeted for Q2/Q3 2026. Notably, the broader Plant 2 expansion has been brought forward from the originally planned 2027 timeline, with additional lines and equipment to increase capacity – a strong signal of robust forward demand visibility from its key foundry. Management is also in discussion to acquire a new piece of land 650m from Plant 1 to support future expansion. The expedited capacity build-up positions FRONTKN to capture its key foundry customer's 2nm production ramp into 2H26, while previously negotiated pricing improvements should help cushion ongoing TWD/MYR forex pressure. The oil & gas segment continues to benefit from sustained maintenance and production activities, underpinned by relatively stable energy market fundamentals, with resilient demand expected for specialised maintenance and engineering services, and we continue to expect strong growth in this segment going forward.

Earnings Revision. We maintain our FY26F/FY27F/FY28F core net profit forecasts of RM197.3m/RM206.8m/RM217.4m, with no changes to our earnings assumptions.

Valuation & Recommendation. We maintain our BUY call with a higher TP of RM5.86 (previously RM5.71), based on a higher P/E of 46.2x (previously 45.0x) applied to our unchanged FY27F core EPS of 12.7sen. We believe the higher valuation is warranted given (i) multi-year earnings visibility from the advanced node ramp at its key foundry customer, (ii) AI-driven semiconductor demand tailwinds, and (iii) a healthy net cash position.

Risks. Continued MYR strength against TWD eroding translation gains; slowdown in semiconductor capex cycle; oil price volatility affecting O&G activity levels; geopolitical tensions disrupting supply chain; loss of key foundry customer.

 

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