KUALA LUMPUR (Aug 5): Hong Leong Investment Bank (HLIB) Research has reiterated its "buy" call for Frontken Corp Bhd at RM3.69 with a higher target price (TP) of RM3.96, from RM3.47, based on its unique exposure to the world's leading-edge semiconductor front-end supply chain.

The research house raised its price-earnings (PE) multiple to 40 times earnings per share (EPS) forecast for the financial year ending Dec 31, 2021 (FY21). 

In a note today, HLIB Research analyst Tan J Young said the research house justified this valuation based on Frontken’s unique exposure to the world's leading-edge semiconductor front-end supply chain which is currently in high demand on the back of national strategic and security interests. 

“We like Frontken for its multi-year growth ahead on the back of a sustainable global semiconductor market outlook, robust fab investment, leading-edge technology (7nm and below) and its strong balance sheet (net cash of RM247 million or 23.4 sen per share),” said Tan.

To recap, the group posted a 23% increase in net profit for the second quarter ended June 30, 2020 (2QFY20) to RM20.33 million, mainly contributed by its subsidiary in Taiwan on the back of positive growth of the semiconductor business, while revenue rose to RM87.62 million from RM80.14 million a year ago. 

“Its record-breaking 2QFY20 core net profit of RM20 million (+25% quarter-on-quarter or q-o-q; +18% year-on-year or y-o-y) brought 1HFY20’s (first half ended June 30, 2020) sum to RM37 million (+12% y-o-y), which was within expectations, accounting for 45% and 43% of HLIB's and the consensus full-year estimates respectively.

“2H is a seasonally stronger half for Frontken. One-off adjustments include forex gains (RM51,000) and allowances for impairment losses on receivables (RM64,000),” Tan noted. 

Besiders, Tan added that Frontken is seeing advancement and deployment of new innovative technologies, following the global fifth-generation (5G) network roll-out, to benefit its business. 

“Demand momentum is robust, driven by its undisputable leading position in precision cleaning of advanced nodes, including the 7nm and 5nm. 

“Output for the 5nm is expected to outstrip the earlier forecast and Frontken is not only involved in cleaning new parts, but also new equipment,” he noted.

At 9.50am, shares in Frontken were five sen or 1.08% higher at RM3.73, valuing the counter at RM3.94 billion. It saw 851,300 shares traded.