PETALING JAYA: Frontken Corp Bhd is expected to see a 22% lift in core net profit in its next financial year ending Dec 31, 2023, underpinned by the expansion of the group’s second Taiwan plant.

       Hong Leong Investment Bank (HLIB) Research in a report yesterday said the first phase expansion of Frontken’s second Taiwan plant is ahead of schedule.

       “Although plant two’s land size is almost the same as plant one, the former’s production capacity can be more than double as new technology requires less floor space.

       “It is still negotiating with sellers for another piece of land as pricing is at the top end of the market and management is not desperate.

       “This land is meant for its expansion plan for the next eight years based on business projection.”

       Additionally, HLIB Research said demand for Frontken’s products continues to remain strong.

       It added that the company is experiencing some price pressure, even though foundries are increasing their average selling price.

       “So far, raw material costs are stable and under control.

       “Frontken has adjusted staff wages in certain regions but is not expected to affect the group’s cost structure in a big way.”

       HLIB Research said the group’s expenses will increase in the near term due to the commencement of subsidiary Ares Green Technology Corp’s second plant, as well as its oil and gas (O&G) setup in Pengerang.

       Frontken provides support services to the semiconductor industry, including surface treatment and mechanical engineering solutions for the semiconductor, O&G, marine and power generation industries, among others.

       HLIB Research believes demand projection remains strong with no order reduction thus far.

       “Earnings before interest, tax, depreciation and amortisation margin should increase thanks to improvement in the oil and gas business.”

       The research house said it expects Frontken’s O&G business to achieve double digit growth at the net profit level.

       Additionally, HLIB Research said Frontken is in negotiations with an original equipment manufacturer customer, an existing client in Taiwan, on a large volume-based project to support Singapore foundries.

       “If this project materialises, expansion will be required and it plans to repurpose the idle space on its O&G site.

       “Capital expenditure for this project is estimated to be between RM3.5mil and RM4mil, including the purchase of testing and measuring equipment.”

       HLIB has a “buy’’ call on Frontken with a lower target price of RM3.20 for the company.