Frontken: Squeaky Clean Profits, but ROE Needs a Polish

Frontken Corporation Berhad is a leading service provider specializing in advanced precision cleaning, surface treatment, and maintenance of high-value components for the semiconductor and oil & gas industries.

Over the past six years, it has been riding a pretty sweet growth wave - revenue grew at a solid 11% CAGR, thanks to booming demand in semiconductors, smart capacity expansions, and a nice little comeback from its oil & gas business.

Profits shot up even faster, with PAT growing at 15% CAGR. That is the magic of doing more high-value work, keeping costs in check, and squeezing more out of each dollar, particularly in its powerhouse hubs of Taiwan and Singapore.

But here is the twist. Despite raking in more profits, ROE barely budged, moving from 20.0% in 2019 to just 20.7% in 2024. Why?

Well, Frontken has been playing it safe - retaining lots of earnings, issuing new shares from warrant conversions in 2024, and keeping its balance sheet squeaky clean. All great for stability, but not exactly ROE fuel.

Still, on the Fundamental Mapper, Frontken shines bright, sitting proudly to the right with its strong business performance. But… maybe just a little too bright for the market’s liking. With its stock price possibly outpacing its fundamentals, it is landed in the Gem quadrant—sparkling with quality, but perhaps already fully admired.

US Commerce Secretary Lutnick said the US and China finalized a trade deal 2-days ago and the US will lift export curbs on semiconductor engineering software and some materials in exchange for China re-starting rare earths shipments to the US, Bloomberg reports. A framework for a deal was agreed upon 2-weeks ago.