Another magnificent quarter as 3Q18 performance lifted 9M18 core net profit to RM35m (+48% YoY) which meets expectations. Declared single dividend of 0.7 sen per share. This outstanding performance was mainly driven by stronger semiconductor contribution while O&G exhibited resiliency with second consecutive quarterly profit in 3Q18. Forecasts were unchanged. Reiterate BUY with unchanged TP of RM1.05.

Within expectations. 9M18 revenue of RM239m translated into a core net profit of RM35m, accounting for 77% of HLIB and street full year forecasts, respectively. 3Q18 results were another all-time high achievement in terms of sales and profitability after outdid its own 2Q18 record performance.

Dividend. Declared an interim single dividend of 0.7 (3Q17: none) sen per share. YTD dividend amounted to 0.7 (9M17: 0.5) sen per share.

QoQ. Turnover increased 5% to reach RM86m thanks to higher contributions from Taiwan, Malaysia, Singapore and Philippines. This expansion is mainly driven by the semiconductor business segment. After one-off adjustments, core net profit grew 17% to RM15m attributable to lower effective corporate tax rate of 20% vs. 2Q18’s 32%.

YoY. Top line gained 9% attributable to the growth from semiconductor business, where Taiwan and Singapore improved 4% and 11%, respectively. Malaysia and Philippines also recorded a better performance due to new works secured in light of recovery in the O&G industry. As a result, core earnings ballooned 50% on the back of O&G’s turnaround and lower MI with increased stake in AGTC.

YTD. Revenue accelerated 10% supported by Taiwan (+12%), Malaysia (+12%) and Singapore (+8%) leveraging on stronger semiconductor demand. After excluding non core items, bottom line gained 48% to RM35m for the same reason mentioned above.

O&G recovery. Record second consecutive quarterly profit with RM1.3m in 3Q18 bringing YTD PAT to RM0.8m. We believe the turnaround story remains intact and this performance is sustainable going forward considering Brent crude price remains stable at high levels.

Management’s prospects. In view of the encouraging industry forecast, Frontken anticipates that the overall business conditions for 4Q18 to be positive. It will also continue to be vigilant in its cost management and strive to improve on its efficiency. Its priority is to focus on quality to maintain competitiveness.

Forecast. Maintain as results were in line.

Reiterate BUY with unchanged fair value of RM1.05, pegged to 20x of FY19 EPS. We think Frontken is expected to experience multi-year growth ahead on the back of (1) bullish global semiconductor market outlook; (2) robust fab investment (3) leading edge technology; (4) O&G recovery; and (5) strong balance sheet.

Source: Hong Leong Investment Bank Research - 8 Nov 2018