Friday 29 Mar 2024
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KUALA LUMPUR (Feb 4): Maybank IB Research has maintained its “Buy” rating on Frontken Corp Bhd at 83 sen with an unchanged target price of RM1.01 and said upcoming 4Q18 results could see better earnings on higher services revenue and margin expansion and this should continue into FY19.

“We make no changes to our FY18E-20E forecasts for now. Valuations are inexpensive at 15.4x FY19 PER (0.65 PEG),” the research house said in a note Jan 31.

Maybank IB Research estimates Frontken’s 4Q18E core net profit to be higher year-on-year at RM13 million-RM16 million (4Q17: RM10.9 million), bringing FY18E core net profit to RM45.5 million-RM49 million (FY17: RM35.5 million), meeting 100%-108% of its full-year forecast.

“We expect the potentially stronger results to be mainly due to higher revenue for cleaning its Customer X’s 7nm technology that was fully utilised in 4Q18 (Apple, Hisilicon, and Qualcomm account for 80+% sales).

“We believe Frontken has benefited much from the 7nm since 3Q18 given that the amount of cleaning orders is 4x more than other nodes due to more parts and their complexity. The cleaning has also to be more frequent due to quadruple steps in the 7nm process that will rapidly contaminate the parts,” it said.

The research house said it expects Frontken’s 4Q18 Singapore ops to report higher than 3Q18’s revenue of MYR16.0m, largely  due to strong orders for clean stacking its memory customer’s quartz parts (that are used in the diffusion or deposition process).

Maybank IB Research said it expects Frontken’s work orders and profit margin in FY19 to remain resilient as (i) its Customer X’s 7nm will be a long node; (ii) the Group is also constantly making its services more efficient with the implementation of new methods of cleaning, which will value add to both Frontken and its customers; and (iii) strong backlog orders from its memory customer in Singapore.

“Therefore, we maintain our FY18E-20E forecasts for now; we have already factored in concerns over the demand for new smartphone and other consumer electronics,” it said.

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