KUALA LUMPUR (Aug 15): Shares in Frontken Corp Bhd (KL:FRONTKN) extended their decline on Thursday, as investors reacted poorly to the semiconductor support services company’s weaker-than-expected results for the second quarter ended June 30, 2024 (2QFY2024).
Frontken fell as much as 27 sen or 6.5% to RM3.88. The stock was trading at RM3.92 at 10.30am, giving the company a market capitalisation of RM6.23 billion on Bursa Malaysia. More than 2.85 million shares in Frontken changed hands so far.
Analysts, however, remained positive on the stock, flagging earnings growth even as they slashed estimates to account for the weaker showing. Net profit for the first half ended June 30, 2024 (1HFY2024) accounted for only a little over one-third of the consensus full-year estimate.
“We expect Frontken to experience multi-year growth ahead,” said Hong Leong Investment Bank, which kept the stock on a ‘buy’ call following the results announcement, citing recovery of the global semiconductor market, robust fab investment, and a strong balance sheet to support expansion, among others.
Thursday’s decline trimmed Frontken’s year-to-date gains to 21%, amid a broad rally in the technology sector fuelled by optimism about a semiconductor upcycle and boosted by demand for chips to power artificial intelligence.
Six out of nine research houses covering Frontken still have ‘buy’ calls on the stock, while the remaining three have ‘hold’ recommendations. The consensus 12-month target price is RM4.96, according to Bloomberg, a potential return of close to 27% from its last price.
Frontken showed in a bourse filing on Wednesday that its net profit for 2QFY2024 stood at RM33.33 million or 2.12 sen per share, compared with RM31.91 million or 2.03 sen per share for 2QFY2023. Quarterly revenue climbed 11.37% year-on-year to RM134.93 million from RM121.15 million.
The company’s results will improve in 2HFY2024, driven by seasonality and ramp-up of productivity, said Apex Securities. Frontken is “well positioned” to benefit from the anticipated global recovery in the electronics sector in 2025, and sustained demand for AI chips, the house noted.
Further, Frontken’s key Taiwanese clients are expected to begin ramping up production of advanced chips in 2QFY2025, which “bodes well for Frontken’s top line and margins following the more complexity in processes involved”, Apex added.
For Maybank Investment Bank, however, Frontken’s share price will have limited further upside, as the company grapples with persistent near-term challenges at its Malaysian and Singapore operations. The house downgraded the stock to ‘hold’ from ‘buy’.
Insurance compensation for earnings loss from a fire incident at Frontken's Kulim facility in May would be uncertain, while volume at its Singapore operations is also not expected to pick up meaningfully until early 2025 after a recovery in the memory market failed to materialise so far, the research house flagged.