1H21 core net profit of RM48m (+31% YoY) matched expectations. Announced first single tier DPS of 1.5 sen. Top and bottom line growths were mainly driven by semiconductor business. AGTC’s newly acquired Plant 2’s phase 1 capacity utilization is expected to be full from day 1 based on customer’s projection and will begin Phase 2 expansion immediately. It is cautiously optimistic that O&G will perform better than last year. Reiterate BUY with unchanged TP of RM3.88, pegged to 50x of FY22 EPS. We like its unique exposure to leading-edge semiconductor frontend supply chain.

In line. All-time high 2Q21 core net profit of RM26m (+15% QoQ, +26% YoY) brought 1H21’s total to RM48m (+31%) which matched HLIB and consensus, accounting for 47% and 44% full year forecasts, respectively. 2H is a seasonally stronger half for Frontken (1H20 core PAT accounted for 45% of FY20’s). 1H21 one-off adjustments include forex gain (+RM7k), PPE disposal gain (+RM22k), PPE written off (-RM3k) and allowance for impairment losses on receivables (-RM283k).

Dividend. Announced first single tier DPS of 1.5 sen (2Q20: 1.2 sen) while entitlement and payment dates will be decided at a later date. YTD DPS 1.5 sen vs 1H20’s 1.2 sen.

QoQ. Turnover inched up 5% mainly due to better performances from Malaysia (+17%), Singapore (+10%) and Taiwan (+7%), more than sufficient to offset the declines in Indonesia (-22%) and Philippines (-3%). While EBITDA margin lost 2.3ppt, core net profit gained by 15% to RM26m in the absence of the provision for surtax on undistributed earnings by AGTC in 1Q21.

YoY. Revenue saw a solid growth of 24% driven by Malaysia (+61%), Taiwan (+27%), Philippines (+12%) and Singapore (+10%), more than sufficient to offset Indonesia’s decline (-28%). In turn, core earnings rose at a quicker pace of 26% partly aided by lower D&A (-4%).

YTD. Top and bottom lines strengthened by 23% and 31%, respectively thanks to robust semiconductor business. In terms of segmental sales breakdown, Malaysia (+36%) led the pact, followed by Taiwan (+31%), Philippines (+5%), Singapore (+1%) and Indonesia was the sole loser (-24%).

Semiconductor. Generated 85% (2Q20: 87%) of group revenue in 2Q21. AGTC has completed the acquisition of a building (Plant 2) situated in the Southern Taiwan Science Park at Kaohsiung City on 9 Jul 2021. It is expected to be operational next year in tandem with the proposed commercial production of the 3nm chips by its key customer in Taiwan. Plant 2’s phase 1 capacity utilization is expected to be full from day 1 based on customer’s projection and will begin Phase 2 expansion immediately.

O&G. Accounted for the remaining 15% of group turnover in 2Q21. It will continue to chase for new works in view of the strong Brent crude oil price recovery. Hence, it is cautiously optimistic that O&G will perform better than last year. Its new Pengerang facility will be completed soon.

Forecast. Unchanged.

Reiterate BUY with unchanged TP of RM3.88, pegged to 50x of FY22 EPS. We like Frontken for its multi-year growth ahead on the back of: (1) sustainable global semiconductor market outlook, (2) robust fab investment, (3) leading edge technology (7nm and below), and (4) strong balance sheet (net cash of RM326m or 31 sen per share) to supports its Taiwan expansion.

Source: Hong Leong Investment Bank Research - 30 Jul 2021