FRONTKN: A proxy to the AI euphoria

A proxy to the AI euphoria. In wake of the bull run on the Nasdaq index, FRONTKN has recently captured the attention of the local investing community, catalysing from the rising demand and interest for the AI-related stocks. The surge has fuelled strong demand for AI chips and cloud services, propelling prominent players like NVIDIA, AMD, and Google to experience meteoric rises in their share prices. TSMC, as the manufacturer of advanced AI chips for major companies including NVIDIA, Google, AMD, Amazon, and Microsoft, has also benefited from this bullish trend. While Bursa Malaysia stocks do not have direct exposure to AI, FRONTKN emerges as an indirect beneficiary thanks to its booming cleaning business with major foundries in Taiwan, which is the largest contributor to the group. FRONTKN specializes in ultra-high purity precision cleaning and surface treatment services for foundries with leading edge technology to handle 7nm and below wafers.

Semiconductor sales to recover in 2024. Semiconductor sales is expected to rebound in 2024, with WSTS forecasting a 13% YoY growth. In TSMC's 4Q23 earnings call, the company guided that earnings has bottomed out on a YoY basis and anticipates a healthy growth year in 2024. The strong growth is bolstered by the continued strong ramp-up of industry-leading 3nm technologies, high demand for 5nm technologies, and robust AI-related demand. The expected increase in output from foundries will drive demand for FRONTKN's services, enabling them to maintain production yields and extend the useful life of chamber components. This positions FRONTKN as a proxy to the front-end semiconductor industry.

Oil & Gas. Accounted for 23% of group turnover in FY23. FRONTKLN is also encouraged by an expected increase in FY24 due to rising orders from various contracts for provision of engineering services, manpower supply and also mechanical rotating equipment services and parts that it has with the oil majors.

Higher high formation. FRONTKN is trading within its uptrend support range of RM3.64-3.70. A successful breakout above RM3.74 will spur the price toward RM3.87-4.00-4.10 levels, forming a higher high pattern. Cut loss at RM3.50.

Collection range: RM3.57-3.60-3.69

Upside targets: RM3.87-4.00-4.10

Cut loss: RM3.50

Source: Hong Leong Investment Bank Research - 15 Mar 2024