Analysts anticipate stronger second half for Frontken

KUALA LUMPUR (July 30): Analysts expect a stronger second half for Frontken Corp Bhd after the group achieved record high earnings for the second quarter ended June 30, 2021 (2QFY21).

Hong Leong Investment Bank (HLIB) Research analyst Tan J Young in a note today said the group’s all-time high 2QFY21 core net profit of RM26 million brought its core net profit for the first half ended June 30, 2021 (1HFY21) to RM48 million, which matched his full-year forecast at 47%.

According to him, the second half is a seasonally stronger half for Frontken.

He also noted the group’s Ares Green Tech Corp’s (AGTC) newly acquired Plant 2’s Phase 1 capacity utilisation is expected to be full from day 1 based on customer projections and will begin Phase 2 expansion immediately.

He also said the group is cautiously optimistic that its oil and gas (O&G) business will perform better than last year.

Tan reiterated his “buy” call on Frontken, with an unchanged target price (TP) of RM3.88.

“We like Frontken for its multi-year growth ahead on the back of a sustainable global semiconductor market outlook, robust fab investment, leading-edge technology and strong balance sheet to support its Taiwan expansion,” he said.

Maybank Investment Bank Research analyst Kevin Wong also said Frontken’s 2QFY21 core net profit was in line, with 1HFY21 core earnings at 45% of his FY21 estimate.

“Results were in line as we expect Frontken’s earnings to remain seasonally stronger for the second half,” he said.

His FY21 to FY23 net profit estimates for Frontken are intact, where growth would be largely driven by Frontken’s semiconductor segment, namely in Taiwan.

“We also believe Frontken’s earnings are supported by the global semiconductor industry’s upcycle, which entails strong demand for advanced chips,” he added.

He also noted that the group’s mid to long-term growth prospects would come from its expansion plans in Taiwan, where it completed the purchase of a new facility in early July this year, and operations are estimated to commence in mid-2022.

“We have yet to factor in significant earnings contributions from the upcoming plant in our FY22 and FY23 forecasts, pending further operation visibility and updates,” he said.

He maintained his “buy” call on Frontken, with an unchanged TP of RM3.90.

At 10.36am, Frontken had slipped six sen or 1.82% to RM3.23, valuing the group at RM5.21 billion.

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