Semiconductor boom bodes well for Frontken, says HLIB

PETALING JAYA: Hong Leong Investment Bank (HLIB) Research has issued a non-rated call on Frontken Corp Bhd with a fair value of 45 sen, and said the group’s semiconductor division is expected to be its major growth driver, leveraging on the booming semiconductor industry.

The company’s shares closed trading up 2 sen to 34.5 sen yesterday, on 21.29 million shares done. It has a market capitalisation of RM361.56 million.

Frontken provides surface metamorphosis and mechanical engineering solutions, serving a wide range of heavy industries. Its treatment technology modifies material surfaces with unique properties to improve performance, increase efficiency, reduce maintenance cost and extend lifetime.

In a note yesterday, the research house analyst Tan J Young said based on the World Semiconductor Trade Statistics’ latest May data, year-to-date 2017 (YTD17) global sales of semiconductor were even stronger than forecast.

He said that this bodes well for Frontken as its subsidiary Ares Green Tech Corp (AGTC) had expanded seven new production lines in FY16.

“AGTC will be focusing more on foundries with capabilities of 28nm and below which will yield healthier margins at the expense of volume,” he noted.

Tan said the group’s oil and gas (O&G) segment remains its major contributor but the business has been dwindling since FY15 in tandem with the crash in crude oil prices, adding the O&G outlook is uncertain amid the volatility in oil price.

“However, overall industry is still weak but could have bottomed,” he added.

Meanwhile, Tan said the weak ringgit will be a catalyst for the company.

Risks to growth he noted, include foreign exchange, competition, regulatory and implementation risks.

Nevertheless, Tan said the group ended FY16 in a net cash position of 6.3 sen per share and expect cash to continue piling up going forward in the absence of major capital expenditure.