Maybank IB Research said it expects the deal to be fully funded internally.
PETALING JAYA: Mechanical engineering and semicondutor-services company Frontken Corp Bhd
is expected to see earnings growth upon completion of its acquisition of a US-based company this year.
Maybank Investment Bank (Maybank IB Research) said it expects the deal to be fully funded internally due to the company’s healthy net cash balances of RM367mil as of the end of the third quarter 2024 (3Q24).
“Assuming the acquisition is completed by the end of 1Q25 for about US$50mil, or a multiple of about 10 to 12 times price-earnings and the company’s target earnings for last year are replicated from this year to 2026, the acquisition will likely lift Frontken Corp’s earnings by 7% to 9%, and 8% to 10% this year and next year, respectively,” the research house added.
Maybank IB Research said. during Frontken’s last analyst briefing in October 2024, the company’s management had disclosed that it was exploring the acquisition of 100% equity interest in an as yet unnamed US-based company for about US$40 to US$50mil (about RM177mil to RM221mil).
Frontken Corp specialises in engineering and precision cleaning services, mostly for the semiconductor and oil and gas markets in Taiwan, Singapore and Malaysia.
In terms of downside risks for the company, research house said, for now, they are relatively contained.
“Although we do not rule out downside risks to front-end volume loading in Taiwan, Singapore and Malaysia from a turbulent macro climate due to US tariff threats, high inflation, weak global aggregate demand, we believe a marginal shortfall will likely be mitigated by a successful value-accretive acquisition.
“The US deal falling through, coupled with a weaker FY25 demand outlook, could potentially serve as a derating catalyst for Frontken Corp,” the research house added, noting that it was maintaining its “buy” call on the company.
