9M21 core net profit of RM74m (+27% YoY) matched ours but missed street. Top and bottom line growths were mainly driven by semiconductor business though O&G business has seen robust improvement. AGTC has completed the acquisition of a building (Plant 2) situated in the Southern Taiwan Science Park at Kaohsiung City on 9 Jul 2021 to support a major customer’s aggressive expansion. It is expected to be commissioned sometimes in 2H22. Reiterate BUY with higher TP of RM4.15, pegged to 50x of mid-FY23 EPS. We like its unique exposure to leading-edge semiconductor frontend supply chain.

Matched ours but missed consensus. All-time high 3Q21 core net profit of RM27m (+3% QoQ, +22% YoY) brought 9M21’s total to RM74m (+27% YoY) which was in line with HLIB full year forecast at 74% but came below consensus at 69%. 9M21 one-off adjustments include forex gain (+RM389k ), PPE disposal gain (+RM22k), PPE written off (-RM3k) and allowance for impairment losses on receivables (+RM139k).

Dividend. None (3Q20: none). YTD DPS 1.5 sen vs 9M20’s 1.2 sen. Dividend is traditionally distributed semi-annually.

QoQ. Turnover inched up 7% mainly due to better performances from Malaysia (+13%), Taiwan (+9%) and Philippines (+6%), more than sufficient to offset the declines in Indonesia (-39%) and Singapore (-6%). In turn, core net profit gained 10% to RM27m thanks to efficiency gain as EBITDA margin strengthened 0.7ppt.

YoY. Revenue saw a solid growth of 23% driven by Malaysia (+43%) and Taiwan (+27%), more than sufficient to offset the contractions in Indonesia (-17%), Philippines (-8%) and Singapore (-1%). Filtered down, core earnings rose 22% on the back of stable EBITDA margin.

YTD. Top and bottom lines strengthened by 23% and 27%, respectively thanks to robust semiconductor business. In terms of segmental sales breakdown, Malaysia (+30%) led the pact, followed by Taiwan (+29%), Philippines and Singapore were rather flat and Indonesia was the sole loser (-22%).

Semiconductor. Generated 85% (3Q20: 88%) of group revenue in 3Q21 at RM99m and PAT improved 13% YoY. It has benefited from higher demand and strong orders from one of its customers’ advanced nodes chip. The client’s aggressive expansion augurs well for Frontken’s semiconductor business for years to come. As such, 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 commissioned sometimes in 2H22.

O&G. Accounted for the remaining 15% of group turnover in 3Q21 at RM18m and PAT improved 333% YoY. Noticed robust improvement due to new orders trickling in from the various umbrella contracts for provision of manpower supply and also mechanical rotating equipment services and parts that it has with Petronas companies. It hopes that momentum will pick up going forward as the soon to be completed new Pengerang facility will be ready to support the contracts in hand.

Forecast. Unchanged.

Reiterate BUY with higher TP of RM4.15 (previously RM3.88), pegged to 50x of midFY23 EPS (previously 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 RM282m or 18 sen per share) to supports its Taiwan expansion.

Source: Hong Leong Investment Bank Research - 5 Nov 2021