KUALA LUMPUR (Aug 2): Hong Leong Investment Bank (HLIB) Research maintained its "hold" call on Frontken Corp Bhd at RM3.27, with a higher target price (TP) of RM3.07 (from RM3), after the surface engineering service provider's performance missed expectations for the second quarter ended June 30, 2023 (2QFY2023).

Frontken's net profit slipped by 0.89% to RM31.91 million for 2QFY2023, from RM32.2 million for 2QFY2022, due to lower revenue from its Taiwan and Singapore units due to weaker semiconductor demand. Revenue fell 5.5% to RM121.5 million, from RM128.20 million previously.

HLIB' s TP of RM3.07 was derived from valuations rolled forward based on an unchanged price-earnings multiple of 30 times FY2024 earnings per share (EPS) from FY2023 EPS.

Analyst Tan J Young said in a research note the company’s risk and reward profile remains balanced, notwithstanding its seven-nanometre-and-below technology leadership, and its strong balance sheet or net cash of RM378 million or 23.9 sen per share to support its expansion in Taiwan and Singapore.

Tan said the company’s core net profit of RM29 million brought the first half of FY2023’s sum to RM53 million, which missed expectations — accounting for 33% of HLIB's full-year forecast, and 36% of the consensus.

“Taiwan Plant 2 began to generate revenue in 2QFY2023, and is expected to improve in 3QFY2023,” he said of Frontken’s semiconductor segment.

“Singapore was a major disappointment impacted by a lacklustre memory segment.

“It sees no hurry to have a presence in the US, and continues to explore avenues with partners.”

Tan trimmed his core profit after tax and minority interest forecasts for Frontken by 21% for FY2023, 7% for FY2024, and 8% for FY2025.

In the morning session on Wednesday (Aug 2), Frontken’s share price remained unchanged at RM3.27, giving it a market capitalisation of RM5.17 billion.

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Frontken’s 2Q net profit slips marginally on lower revenue from Taiwan, Singapore units