KUALA LUMPUR (Aug 7): Frontken Corp Bhd was up in active trade today after Hong Leong Investment Bank (HLIB) initiated coverage on the stock with a buy rating, citing a bullish semiconductor market, robust semiconductor fabrication plant (fab) investment, and oil and gas recovery.
"Frontken has a strong balance sheet and we foresee that it may adopt a dividend policy," HLIB analyst Tan J Young wrote in a research note today titled Atomic scale driving explosive growth.
Shares in Frontken were up 3 sen or 5% at 63 sen as at 9.47am today. It was Bursa Malaysia's fifth most actively traded stock with 15.59 million shares crossed.
HLIB gave the semiconductor services provider a fair value of 84 sen, representing 18 times its 2019 financial year earnings per share.
"The valuation is in line with the average of global suppliers to the fab industry," HLIB said.
The group's recent financial outperformance, marked by a four-year compounded average growth rate of 22% for revenue between its 2013 and 2017 financial years, is "expected to from strength to strength going forward", the research house said.
"Its financial year ending Dec 31, 2018 is projected to be a record-breaking year with both top and bottom lines achieving all-time high(s)," Tan said, adding that with a net cash position of RM80.3 million in its first quarter, the group is in a good position to reward shareholders with dividends.
On top of that, robust investment in fab construction is also expected to drive demand for Frontken's cleaning services, which are underscored by the group's technological leadership.
"We welcome the recent major change in shareholding despite the heavy discount," HLIB added, referring to the recent indirect acquisition of a 27.77% stake by Frontken chairman and chief executive officer Ng Wai Pin at 39 sen and 38 sen per share for two separate blocks respectively.
"We perceive the deal positively due to the removal of any potential conflict of interest and risk, and the buy-in from a reputable and savvy private equity fund," it said, adding that this solidifies its belief about Frontken's future prospects.