Maybank IB Research said despite Frontken’s second quarter 2024 Malaysian turnover falling short, the company’s oil and gas operations have historically been profit-making.
PETALING JAYA: Frontken Corp Bhd
’s second half (2H24) prospects look bright underpinned by several growth drivers amid downside risks.
Maybank Investment Bank (Maybank IB) Research, in a recent meeting with the company’s management, said despite Frontken’s second quarter 2024 (2Q24) Malaysian turnover falling short, the company’s oil and gas (O&G) operations have historically been profit-making.
Based on monthly work order flows in July and August, the company expects segmental turnover to rebound quarter-on-quarter (q-o-q) in 3Q24.
O&G segmental earnings before interest and taxes (Ebit) margin is in the high single-digits (versus Malaysia and Singapore semiconductor margins in the double-digit range), it noted.
Frontken’s O&G exposure is derived from its engineering segment in three key geographical markets – Malaysia, Singapore and the Philippines.
Malaysia accounts for about 70% to 80% of the O&G sub-segment’s turnover, primarily from umbrella contracts with Petroliam Nasional Bhd (PETRONAS).
Frontken is an approved PETRONAS sub-contractor for both upstream and downstream works.
Its Malaysian semiconductor operations that were affected by a fire at its Kulim plant in May is operating above breakeven utilisation, with a full recovery expected by 4Q24.Management has also guided it would recoup roughly half of the RM1mil fire-induced losses via insurance claims in 2H24.
“In Singapore, we gather that quarter to date 3Q24 volume loading is seeing encouraging pick-up of about 20% compared with 1Q24 and 2Q24 from its memory-centric semiconductor customers,” it said.
Semiconductor growth momentum would continue to deliver monthly record volumes on the back of its leading foundry customer’s ramp up of next-gen three nanometers (nm) process nodes.
“With the foundry expecting about 25% to 36% increase in three nm revenue this year (buoyed by the launch of the latest North American flagship smartphone line-up), we believe this bodes well for Frontken’s 2H24 prospects,” the research house said.
Maybank IB said there are several risk factors for its earnings estimates, target price and rating.
A sharp downturn in the global markets for electronics and O&G would affect the demand for Frontken’s services, it said.
Additionally, foreign exchange volatility, especially in the US dollar and ringgit exchange rate, would affect its earnings, as about a fifth of the group’s revenue is denominated in US dollars.
The company posted second quarter ended June 30, 2024 (2Q24) net profit of RM33.33mil, which was higher than RM31.91mil registered during the same corresponding quarter last year.
The group’s revenue rose to RM134.93mil as compared to RM121.15mil, while earnings per share stood at 2.12 sen against 2.03 sen previously.
Frontken is a provider of support services to the semiconductor industry, surface treatment and mechanical engineering solutions, serving a wide-range of industries such as semiconductor, O&G, power generation and marine.
