KUALA LUMPUR (Feb 24): JF Apex Research has maintained its “buy” rating on Frontken Corp Bhd at RM5.32 with a higher target price of RM5.78 (from RM4.33) after rolling over its valuation to FY22F, pegged at price earnings multiple of 42 times FY22F, which is in line with +1 standard deviation of three-year mean price earnings ratio.
In a note today, the research house said its fair value of the stock renders 9% upside to Frontken’s current share price.
JF Apex said Frontken’s FY20 performance with profit after tax and minority interests (PATAMI) of RM82 million (+18.5% year-on-year) is slightly below house and market estimates, accounting for 95%/94% of house/consensus earnings forecasts.
According to the research house, Frontken’s higher revenue/profit after tax contributions are from semiconductor division (+18%/+32%) but were largely offset by disappointing oil and gas division with lower revenue/profit after tax (-25%/-81%) mainly due to the economic slowdown caused by the pandemic.
“Still, the group managed to rake in higher revenue of RM101 million (+13.7%), EBITDA [earnings before interest, taxes, depreciation, and amortization] of RM32.5 million (+17%) and PBT [profit before tax] of RM31.3 million (+27.7%),” it said.
The research house also noted that Frontken’s healthy balance sheet whereby the group registered a net cash of RM291.5 million in FY20 (+47% growth) from RM198.9 million in FY19, forms a solid foundation for its future expansion plans amid a booming tech sector.
Moving forward, the group is looking to expand its capacity in Taiwan by setting up a new state-of-the-art facility, which will be completed in 2022, to handle the high demand of upcoming advanced nodes chips with the advancement and deployment of new innovative technologies following the roll-out of 5G network globally.
JF Apex anticipated that the momentum will pick up further with better performance in the oil and gas division throughout 2021 on the back of economic recovery and recent strong surge in crude oil prices.
Therefore, the research house raised Frontken’s FY21F and FY22F net earnings forecasts marginally by 5% and 7% to RM490.8 million and RM578.6 million respectively after lifting its revenue estimates in the oil and gas division.
At 9.56am, Frontken shares fell 2.26% or 12 sen to RM5.20, valuing it at RM5.48 billion.