While the outbreak of Covid-19 has affected many industries over the past two years, Frontken Corp Bhd has not been fazed by the headwinds brought about by the pandemic, as demand for its services grew amid the push for digitalisation.
The group has once again outperformed its peers in the technology sector, recording the highest growth in profit after tax and the highest returns to shareholders over three years between 2018 and 2020.
This makes Frontken the winner of two The Edge Billion Ringgit Club awards — the highest growth in profit after tax over three years and the highest returns to shareholders over three years. This is the third consecutive year that it has the winner in the two categories since it made the cut as a member of The Edge’s Billion Ringgit Club in 2018.
Frontken provides semiconductor-related services including assembly and testing. It claims to be the largest precision cleaning service provider in Malaysia, covering industries such as semiconductor, photovoltaic and organic light-emitting diodes.
Besides Malaysia, the group has operations in Thailand, Taiwan, Singapore, Indonesia and the Philippines.
Its net profit has more than doubled from RM29.9 million for the financial year ended Dec 31, 2017 (FY2017) to a record high of RM82 million in FY2020, translating into a three-year compound annual growth rate of 40%.
In its FY2020 annual report, Frontken chairman and CEO Ng Wai Pin said its semiconductor business remained resilient as the world pushed towards greater digital adoption amid the pandemic.
“[The semiconductor industry] has been the driver of the accelerating digitalisation of business and society, and we have been fortunate to be a part of this value chain.
“As witnessed throughout the pandemic, the group’s semiconductor business has been incredibly resilient. In FY2020, our semiconductor division contributed 85% of the group’s total revenue, with an improved profit after tax of 32% compared to the year before,” said Ng.
Its operations in Taiwan contributed the most to the group’s performance for the financial year, accounting for about 65% of its total revenue and 73% of pre-tax profit for the year.
Frontken’s impressive earnings growth — in addition to a growing interest in semiconductor-related companies amid expectations of strong demand for semiconductor chips — has driven up its share price to fresh peaks.
Its share price rocketed from 28 sen (the adjusted price after a one-for-two bonus issue in April 2021) on March 31, 2018 to RM3.39 on March 31, 2021 — a gain of 12 times in the three-year period. Its market capitalisation has exceeded RM6 billion.
Furthermore, Frontken declared regular dividends in the three years to reward shareholders. It had steadily raised its payouts through the years as its profit expanded.
The company announced a total dividend per share of 1.5 sen for FY2018, 2.5 sen for FY2019 and four sen per share for FY2020. Over the three years, the group paid out a total of RM83.84 million in dividends, or eight sen per share.
The big leap in its share price, coupled with the dividend payments, has enabled shareholders’ returns to grow at a compound average growth rate of 133.7% over the past three years starting FY2018.
Going forward, the group is planning to expand its capacity in Taiwan with a new state-of-the-art facility, as it anticipates an increase in demand for its services, especially relating to tools used in the manufacturing of the latest nodes of chips.
It says there are indications of multi-year strong demand and growth among its customers, which is evident in their record capex spending.