Frontken: Will It Get Better in 2015?

I first invested (or speculated) in Frontken in 2009, and subscribed to its rights issue with free warrants in 2010.

This stock swung between profit and loss and somehow I manage to sell all the shares and warrants in early 2011 for some gain.

I still kept a very close eye on Frontken after that as super penny stocks around 10-20sen were my favourite.

When Frontken's share price tumbled to around 6sen in year 2013, I still felt that it was a good penny stock with great potential. I planned to speculate on it again when the time was right.

Unfortunately, I lost track with Frontken after I changed my investment strategy in mid-2013. I didn't follow Frontken close enough, and so I missed its share price rally since last year.

Without shadow of a doubt, year 2014 was a magnificent year for Frontken. 

Its revenue reached a record high of RM309.8mil which is 63% better than FY13. It has reversed its loss of RM2.3mil in FY13 to a PATAMI of RM18.8mil in FY14.

What a turnaround.

Its cash flow is good and it has repaid most of its bank borrowings and becomes a net cash company now.

Why does Frontken perform so well in FY2014? Will it continue to do well in 2015?

Lets check its revenue contribution in 2014.

Looking at Frontken's segmental revenue, there is no doubt that Oil & Gas and Semiconductor industries contributed massively in 2014.

Through 57.9%-owned subsidiary company Ares Green Technology (Taiwan), Frontken is able to enjoy the robust growth in the semiconductor sector in Taiwan.

While contribution from Taiwan has increased 50% YoY in 2014, the main contributor is actually from Oil & Gas sector in Malaysia, in which its revenue increased from RM18mil to RM131mil YoY.

In September 2013, Frontken was awarded a contract by ATT Tanjung Bin Sdn Bhd as the main contractor for a hydrocarbon storage and distribution facility at Tanjung Bin.

The contract is worth RM110.6mil and the proposed date of completion of the project is 11 April 2015.

This means that after the Tanjung Bin project has been completed, its O&G annual revenue will likely to shrink significantly especially when there is a slow down in O&G sector now.

While Taiwan's Ares Green is enjoying superb growth in 2014, there is a disturbing slow down in Q1 of 2015 if compared to Q4 of 2014.

The chart below shows monthly revenue of Ares Green (blue bars) & YoY change (red line).

       Ares Green Tech monthly revenue

Though monthly revenue in year 2015 has reduced significantly, fortunately they are still higher compared to previous year's corresponding periods.

However, if there is no "revenue spike" in Q4 of 2015, then Frontken's revenue from Taiwan in 2015 may not show significant growth.

Last year Frontken has acquired 45% stake in TTES Team & Specialist Sdn Bhd which has expertise in turbo machinery and rotating equipment engineering, technology, maintenance and technical support services.

TTES's customers are mainly in the O&G field. Its PAT in 2013 is merely RM1mil and is unlikely to contribute significantly to Frontken in the near future.

In conclusion, Frontken is a good company, but I think its FY15's financial result is unlikely to beat FY14 unless it secured another fat contract like the Tanjung Bin contract this year.