Frontken expected to report solid 2Q results

The Star

19 hours ago

HLIB Research said favourable foreign-exchange trends and sustained strong demand from its key Taiwanese clients will drive the company's growth.
PETALING JAYA: Frontken Corp Bhd , a provider of support services to the semiconductor industry, is expected to record a strong financial performance in its second quarter of 2025 (2Q25) on strong tailwinds from macro factors, analysts say.
Favourable foreign-exchange trends and sustained strong demand from its key Taiwanese clients will drive its growth, said Hong Leong Investment Bank Research (HLIB Research).
Frontken stands to benefit from the surge in new semiconductor fabs globally, notably in the United States, Singapore and India, while the weaker ringgit against the Taiwanese dollar works in its favour, the research house said.
The Taiwanese dollar appreciated against the ringgit by 4% in 2Q25 from the previous consecutive quarter.
But a dilution in the company's share base is expected to cap share prices for the time being.
'While we remain positive on Frontken's growth prospects, a potential sizeable increase in share count of an additional 32% from a warrant conversion that expires in May 2026 remains an overhang that could limit upside in the near term,' the research house said.
'With Frontken's share price now above the RM4 warrant exercise price, the 510 million in-the-money warrants (32% of the current share base) could present a near-term overhang.
'Sustained re-rating beyond the current price range would require strong catalysts such as unexpected strong earnings delivery, clear expansion plans or entry into new markets to absorb incremental supply,' the research house added.
HLIB Research also said Frontken is holding some US$30mil in cash that was previously intended for a potential US acquisition, which could result in up to some RM10mil in non-core, unrealised forex losses in 2Q25.
The weaker ringgit bodes well for Frontken's key subsidiary, Ares Green Tech Corp, which primarily bills its customers in the Taiwanese dollar, the research house said.
'This contrasts with other listed Malaysian peers in the technology sector that are affected by the stronger ringgit due to their US dollar-based export sales,' it said.
HLIB Research said although the planned US acquisition did not materialise, the country's market remains on Frontken's radar, with management currently exploring a potential joint venture or collaboration with a US-based precision cleaning company to support Taiwan Semiconductor Manufacturing Co Ltd's newly established fabs.
'In the near term, cleaning services are still handled in Taiwan via air freight, which remains cost-effective relative to the high operating costs in the United States. However, this arrangement is unlikely to be sustainable, as it runs counter to US localisation and self-sufficiency objectives.'
HLIB Research left its forecasts for Frontken unchanged, maintaining its 'hold' call with an unchanged target price of RM4, based on a target price-earnings ratio of 35 times earnings for next year.