Frontken Corp. Bhd (FRCB) is anticipated to see a strong rebound in its earnings for the second half of 2024, following a recent correction in its share price. The stock has declined by 23% since 10 July 2024, providing a potentially lucrative opportunity for investors. Despite maintaining earnings projections for FY24-26, broking house Maybank has upgraded its recommendation to BUY from HOLD, reflecting an improved risk-reward ratio and more attractive valuations. The target price remains at RM4.20, based on a 35x FY25E price-to-earnings ratio, aligned with the long-term average.
Analysts have responded positively to this outlook. According to the latest updates, Frontken's oil and gas (O&G) segment, which is a significant contributor to its turnover, is expected to perform well in the latter part of the year. The O&G segment, predominantly based in Malaysia, Singapore, and the Philippines, has faced a minor setback in 2Q24. However, management is confident in a rebound, forecasting improved turnover in 3Q24. The Malaysian operations, affected by a fire at its Kulim plant in May 2024, are now operating above breakeven, with full recovery anticipated by 4Q24. The company also expects to recover around RM1 million of the fire-related losses through insurance claims in the second half of 2024.
In Singapore, Frontken's semiconductor operations are showing promising signs, with a significant volume increase in 3Q24 compared to earlier quarters. The company's Taiwan operations are performing exceptionally well, setting monthly records in volume production, driven by its leading foundry customer's expansion into next-generation 3nm process nodes. The foundry's projected 25-36% revenue increase from 3nm technology, spurred by the recent launch of a major North American smartphone, further enhances Frontken's positive outlook for 2H24.