Hong Leong Investment Bank Bhd (HLIB) maintained its BUY call on Frontken Corporation Bhd with an unchanged target price of RM5.75, seeing room for stronger earnings in the second half of FY2026 as Taiwan’s foundry activity remains robust and operational efficiency improves.
Frontken posted core net profit of RM46.8 million for 2QFY2026, up 15% quarter-on-quarter but down 10% year-on-year, bringing first-half core earnings to RM87.4 million. HLIB said this was broadly in line with expectations, representing 42% of its full-year forecast and 44% of consensus estimates.
Revenue slipped 2% quarter-on-quarter to RM187 million as Malaysia’s oil and gas supply activities declined 31%, although Taiwan revenue rose 14% on firmer semiconductor demand. The stronger business mix and higher interest income helped lift profit before tax by 20% quarter-on-quarter to RM73.8 million.
HLIB expects a stronger second half, supported by sustained foundry activity in Taiwan, improving efficiency and higher investment and interest income from Frontken’s net cash position of around RM1.5 billion. Earnings should also benefit from the absence of a RM5.9 million withholding tax recorded during the quarter.
The research house said investors are likely to focus increasingly on margin expansion as Frontken’s largest foundry customer ramps up advanced node production. HLIB expects margin improvement to emerge towards the end of 2026 and become more apparent in 2027.
Frontken also declared a single-tier interim dividend of 2 sen per share. HLIB said structural semiconductor demand driven by artificial intelligence, leading-edge node migration and foundry capital expenditure should continue supporting growth.
