FRONTKN: Annual Earnings Show Robust Growth Despite Currency Headwinds; Analyst Maintains ‘BUY’ Call with Revised Target Price

A recent investment bank research report indicates that while annual core earnings for 2025 demonstrated robust growth, reaching RM167 million and a 23% year-on-year increase, these figures slightly missed internal forecasts. Despite a weaker fourth quarter performance, the long-term growth prospects for the company remain intact, leading to a maintained “BUY” recommendation, albeit with a revised target price.

Performance Review

The company’s full-year 2025 performance saw revenue and core profit grow by 7% and 23% year-on-year, respectively. This strong showing was primarily driven by exceptional contributions from its Taiwan operations, which reported revenue and EBIT growth of 17% and 21%. Robust demand related to Artificial Intelligence (AI) significantly bolstered these figures. The company also achieved an improved EBITDA margin of 40.7%, a 3.6 percentage point increase, attributed to stronger operating leverage and a strategic shift in its product mix towards more advanced nodes.

However, the fourth quarter of 2025 presented a softer picture, with revenue and core profit declining 3% quarter-on-quarter. This dip was largely due to a firmer Malaysian Ringgit, which strengthened by 6% against the New Taiwan Dollar, resulting in a 3% revenue reduction for Taiwan operations. Additionally, softer oil and gas activity in Malaysia contributed to the weaker quarterly results. The overall earnings miss for the year was primarily due to weaker-than-expected revenue, though it remained broadly in line with consensus estimates.

Strategic Outlook and Challenges

Looking ahead, the company’s priorities for the current year are centered on enhancing operational capabilities and expanding capacity. Key initiatives include the qualification of additional cleaning lines in Plant 2 and the relocation of TFT/LCD lines. In anticipation of strong demand from AI and High-Performance Computing (HPC) sectors, management is actively evaluating a Phase 2 expansion of Plant 2 later in the year, alongside potential capacity expansion through land acquisition near Plant 1.

While the long-term growth trajectory remains strong, near-term earnings per share (EPS) are expected to be tempered by currency headwinds. The continued appreciation of the Malaysian Ringgit against the TWD and fewer working days are projected to result in a 5-6% trimming of 2026-27E EPS forecasts. Key downside risks identified include a sharp appreciation of the Malaysian Ringgit, potential customer attribution, and a slower-than-expected recovery in the broader sector.

Analyst Recommendation

The investment bank reiterates its “BUY” recommendation for the company. Following an earnings revision, the 12-month target price has been adjusted to RM4.95, down from the previous RM5.20. This target price is based on an unchanged target Price-to-Earnings (PE) multiple of 40x on 2026E EPS, consistent with its 5-year PE average. The report emphasizes that sustained demand for advanced nodes will continue to underpin a strong earnings trajectory, mitigating the impact of near-term currency headwinds.