• 9M24 core net profit of RM96m (+21% YoY) was within our expectation but fell short of street’s estimate

• Stronger sequential earnings were driven by a recovery in O&G activities and increased semiconductor volume

• Maintain BUY rating with an unchanged TP of RM6.00

Results within expectations

Frontken’s 9M24 revenue rose 14% YoY to RM420m on the back of improvement across Taiwan (+19%), Malaysia (+1%), and Singapore (+5%) as semiconductor volumes picked up. This resulted in a higher core net profit of RM96m (+21% YoY), accounting for 72% of our and 64% of the consensus full-year estimates. Overall results were within our expectations, but fell short of consensus. Despite the revenue improvement, the 9M24 EBITDA margin remained stable at 37%, impacted by higher utility tariffs and wages and increased costs associated with shipping parts to other regions for cleaning following the fire incident at the Kulim facility.

Sequential stronger earnings

Sequential 3Q24 revenue and core net profit increased by 7% and 10%, respectively. The improvement was mainly attributable to a lower effective tax rate (-2ppts) from overseas operations, recovery in O&G activities, and a pickup in semiconductor volume. The operating margins in Malaysia rose to 8% (3Q24: 4%) but remain far from its usual quarterly margin run rate of 18%. With the Kulim facility fully restored and in full production since late Oct24, we expect further cost normalisation, driving further margin expansion and earnings growth. Coupled with the seasonally stronger quarter in Taiwan driving higher P2 utilization, we expect sequential higher earnings in 4QFY24.

Maintain BUY and TP of RM6.00

We reiterate our BUY rating and 12-month target price of RM6.00, pegged to target a 52x PE multiple on 2025E EPS (at +2SD of its 5-year historical mean). We continue to like Frontken as one of the best proxies to ride on the upcoming semiconductor upcycle, given its strong front-end exposure through Taiwan’s customers and potential to benefit from the ramp-up of the customers' investments in lower nodes. Key downside risks include a prolonged semiconductor industry downturn and customer concentration risks.

Source: Philip Capital Research - 30 Oct 2024