FRONTKEN Corporation Bhd’s dominant position in the niche segment of precision cleaning services for the technology players has earned the group a buy call from JF Apex Research.
In its maiden note on the stock today, the research house reported that Frontken had been a leading global player in the segment for close to a decade due to its “huge initial investment and fast-changing technology development”.
This means Frontken has no direct listed competitor in Malaysia. Its closest rival is Taiwanese company Shih Her Technologies Inc that had been a laggard due to “lower operating efficiency for the past five years”, JF Apex said.
Frontken also stands to benefit from a move by 5G developers such as Huawei and Samsung as the group’s services are catered to improving machinery lifetimes and yielding for semiconductor/chip foundries.
The 5G infrastructure market, said JF Apex, is expected to grow at 53.01% annual from this year to 2025.
“We believe a massive amount of semiconductors and chips are needed in the next five years in order to cater to the demand of 5G smart devices including smartphones, laptops, wearable devices and tablets.
“As a result, foundries will need more maintenance services for machinery to fulfil substantial chip orders from global smart device developers,” JF Apex said.
Other tailwinds, the research house added, include a diversified business as Frontken also has expertise in lower-margin segments such as TFT/LCD, as well as a sturdy balance sheet with the group registering RM246.6 mil of dry powder that could be used to expand investment or capitalise future opportunities.
“We estimate the group will continue to remain in net cash position for the next two years on the back of disciplined balance sheet management,” JF Apex said.
The research house’s buy call comes attached with a target price of RM4.33.
Frontken’s stock opened 2.88% higher at RM3.57, giving the company a market capitalisation of RM3.76 bil. – Aug 13, 2020
