4Q25 - Forex translation drag
The ringgit strengthened by ~6% against the Taiwanese dollar, resulting in a forex translation drag.
FRONTKEN
FRCB | 0128.KL
BUY
Target price: RM4.60
Last price: RM3.85
Market cap (RMm): RM6,367m
Shares out: 1,654m
52-week range: RM2.63 / RM4.83
3M ADV: RM12m
T12M returns: 2%
Disclaimer: By using this information, you acknowledge that you are solely responsible for evaluating the merits and risks of any investment decision and agree not to hold NewParadigm Research liable for any damages arising from such decisions.
Key takeaways
- 4Q25 Adj NP of RM40.2m (-3% QoQ, +10% YoY) was behind/in-line with ours/consensus expectations.
- But excluding forex drag (translation loss only), underlying TWD earnings was a robust +34% YoY, and would have met our expectations.
- Maintain BUY, but lower TP to RM4.60 on a lower target multiple of 32.4x. We also trim FY26 Adj NP by -5% to reflect the forex drag.
Share price performance
Investment fundamentals
| RMm | FY24A | FY25E | FY26E | FY27E |
|---|---|---|---|---|
| Revenue | 607.8 | 724.8 | 849 | 990.5 |
| Revenue Growth | 7% | 19% | 17% | 17% |
| EBITDA | 234.7 | 324.1 | 378.6 | 441 |
| EBITDA margin | 39% | 45% | 45% | 45% |
| PATAMI | 154.2 | 215.5 | 253.8 | 295 |
| PATAMI margin | 27% | 30% | 30% | 30% |
| ROA | 13% | 15% | 15% | 15% |
| ROE | 15% | 17% | 17% | 18% |
| PER | 38.3 | 29.1 | 24.7 | 21.3 |
| P/BV | 5.8 | 5.0 | 4.3 | 3.7 |
| Yield | 1.0% | 1.0% | 1.0% | 1.0% |
Source: Company data, NewParadigm Research, February 2026
Underlying strength
- 4Q25 Adj NP of RM40.2m brought full-year earnings to RM167m (+22% YoY), which was 89%/98% of ours/consensus expectations.
- However, stripping out the forex translation hit from the TWD-denominated earnings, underlying NP for the group would have grown by ~30% YoY. The Taiwanese operations alone would have grown by +34% YoY.
- Notably, FRCB did not declare its usual dividend for the 4th quarter. Management pinned this on the lack of retained earnings in the Malaysian entity. A dividend from the Taiwanese unit would be needed, but it would attract a withholding tax. Additionally, FRCB was actively pursuing several M&A opportunities and management prefers to retain some flexibility with funding.
- On that front, management had little details to share on the 2-3 potential M&A opportunities but indicated there was progress from the last briefing.
- Looking ahead, management indicated that the typical 1H-2H seasonality in earnings might not be as evident this year, due to higher demand. A price renegotiation with clients have also been concluded which should stabilize margins for the rest of the year.
Results missed our expectations
Trimming Tp to RM4.60
- Given the strong ringgit outlook for 2026, we trim our FY26/27 Adj NP by -5%/-6% for FY26/27. We lower our TP to RM4.60 on a lower target multiple of 32.4x (3yr average, BF12M).
- Maintain BUY. Underlying fundamentals remain intact.
About the Company
Providing precision cleaning services to leading-edge foundries in Taiwan, where it derives almost 70% of revenues and over 80% of operating profits. It is a relatively high margin business. FRCB’s key customers includes TSMC, and both stocks have historically enjoyed a reliable correlation in earnings. FRCB also runs a non-core O&G business which includes maintenance, repair and overhaul of industrial equipment. FRCB boasts a strong track-record in retaining market share with its customer as well as securing qualification for new nodes.
About the Stock
Frontken is among the top 3 largest companies by market cap within the semiconductor sector in Malaysia. It is seen as the best proxy to front-end semiconductors (fabs), as most of its peers are back-end packaging OSAT’s and/or equipment makers (capital goods) for the sector. The stock is well-institutionalized with EPF holding almost 10% of the stock. On the other side of the coin, the stock is tightly held by institutions and is relatively illiquid. In turn, Frontken trades on premium valuations of >30x PER - even higher than TSMC's high teens PER.
Investment Thesis
Frontken is the best domestic exposure to semiconductor front-end in Malaysia. It boasts more stable and persistent secular drivers, due to its leverage to leading edge processes and customer stickiness. It is also more defensive through the cycle compared with OSAT peers and not exposed to dollar weakness. Frontken's premium valuations is also further justified by the option to match TSMC's capacity expansion into new regions as well as potential to monetize intellectual property.
Key Risks
- High customer concentration risk. While the probability is very low, any operational mistakes/lapses that result in the loss of confidence by the customer poses steep financial risk to FRCB.
- High expectations for earnings delivery - having been consistently profitable since 2016. We anticipate there could be strong negative share price reaction if there is a significant miss to earnings and/or steep downgrade in guidance.
- Geopolitical risk: Frontken is highly exposed to the broader Taiwanese front-end semiconductor ecosystem. Any structural shocks to the industry would pose significant downside risk to both profitability and valuations.
Revenue by segment
4Q25 earnings snapshot
Valuations
Selected financials
Source: Bloomberg, Company data, NewParadigm Research, February 2026
