Frontken Corporation Berhad 3QFY23 Results
Wed, 25-Oct-2023 08:49 am
by Jayden Tan • Apex Research

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FRONTKN (0128)

Target Price (RM)

3.32

Recommendation

Hold

Summary

  • Frontken’s 9MFY23 net profit at RM82.2m came below our expectationsmainly dragged by lower-than-expected revenue and higher withholding tax.
  • Looking ahead, we are cautiously optimistic on the recovery that is supportedby improvement of industry prospects, margin normalisation and contribution from Plant 2.
  • We maintain our HOLD recommendation with an unchanged target price of RM3.32 by pegging PE multiple of 30.1x to FY24F EPS of 11 sen.

Results Review

  • Results review. 3QFY23 net profit declined 23.0% YoY and -16.2% QoQ to RM26.7m, dragged down by lower revenue and higher withholding tax (rate: 12.5%) paid in relation to the dividend received from Taiwan subsidiary (due to higher dividend received). Revenue for the quarter dropped 0.8% YoY but grew 10.2% QoQ to RM133.5m.
  • Below expectations. In 9M23, cumulative net profit at RM82.2m makes up to 62.4% and 58.1% of our and consensus forecasted net profit of RM131.8m and RM141.6m respectively. The variance was mainly due to higher-than-expected withholding tax and lower-than-expected revenue on the back of slower recovery in semiconductor demand than our expectation.
  • Operations Highlights. In 3QFY23, the semiconductor segment revenue was at RM102.2m (-5% YoY, +8% QoQ) contributing to 77% of total revenue. The Engineering segment revenue reported RM31.3m (+16% YoY, +17% QoQ). Geographically, Taiwan revenue was -2.4% YoY, +9.9% QoQ; Malaysia was -2.9% YoY, +7.1% QoQ; and Singapore was +10.7% YoY, +16.4% QoQ.
  • Industry Highlights. Global semiconductor sales ticked up on MoM basis for the sixth consecutive month, demonstrating a steady recovery of the demand. Customers of Frontken indicated better production volumes in near future, mainly driven by AI and EV technology.
  • Outlook. The better QoQ performance sequentially is sign of recovery, despite persistent external headwinds. Frontken will revise their pricing in FY24 to existing customers, due to inflationary cost pressure. With TSMC (Taiwan customer) guided an expectation of rebound in sales in Q4, we are confident that Frontken would perform similarly, alongside with the price adjustment and contribution from Plant 2. All in, we cautiously optimistic with the recovery Group’s bottomline.
  • Risk. External headwinds including geopolitical tensions and global monetary policy uncertainty.
  • Valuation. We cut our earnings forecast by 8.6%, for FY23F but kept our FY24F earnings forecast unchanged, to adjust for the deviation mentioned earlier. Re iterate our HOLD recommendation with an unchanged target price of RM3.32 as reckon the current share price reflects a balanced risk and reward.
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Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

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