Frontken Corporation Berhad 200401012517 (651020-T) ANNUAL REPORT 2023
02 03 04 05 06 08 18 20 23 25 52 53 61 67 70 71 163 166 169 172 Corporate Information Group Corporate Structure Our Vision, Mission and Profile Our Services Financial Highlights Chairman’s Message Financial Review Board of Directors’ Profile Senior Management’s Profile Sustainability Report Statement of Directors’ Responsibilities Corporate Governance Overview Statement Statement on Risk Management and Internal Control Audit Committee Report Additional Disclosure Financial Statements List of Properties Shareholdings Statistics (as at 29 March 2024) Warrant Holdings Statistics (as at 29 March 2024) Notice of Annual General Meeting Proxy Form CONTENTS
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 2 COMPANY SECRETARIES Mah Li Chen (MAICSA 7022751) (PC No. 202008002006) Chew Mei Ling (MAICSA 7019175) (PC No. 201908003178) REGISTERED OFFICE B-11-10 Level 11 Megan Avenue II Jalan Yap Kwan Seng 50450 Kuala Lumpur Tel : (03) 2203 3388 Fax : (03) 2203 3399 Email : lichen@secretariesinc.com HEAD OFFICE Suite 301, Block F Pusat Dagangan Phileo Damansara 1 No. 9, Jalan 16/11 Off Jalan Damansara 46350 Petaling Jaya, Selangor 601D, Level 6, Tower D, Uptown 5 No. 5, Jalan SS21/39 Damansara Uptown 47400 Petaling Jaya, Selangor (From July 2024 onwards) Tel : (03) 7968 3312 Fax : (03) 7968 3316 Email : ir@frontken.com Website : www.frontken.com INVESTOR RELATIONS Tel : (03) 7968 3312 Fax : (03) 7968 3316 Email : ir@frontken.com SHARE REGISTRAR Tricor Investor & Issuing House Services Sdn Bhd Unit 32-01, Level 32, Tower A Vertical Business Suite Avenue 3, Bangsar South No. 8, Jalan Kerinchi 59200 Kuala Lumpur Tel : (03) 2783 9299 Fax : (03) 2783 9222 Email : is.enquiry@ my.tricorglobal.com AUDITORS Crowe Malaysia PLT 201906000005 (LLP0018817-LCA) & AF 1018 Chartered Accountants Level 16 Tower C Megan Avenue II 12 Jalan Yap Kwan Seng 50450 Kuala Lumpur Tel : (03) 2788 9999 Fax : (03) 2788 9998 STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad Stock Name : FRONTKN Stock Code : 0128 Reuters Code : FRKN.KL Bloomberg Code : FRCB MK CORPORATE INFORMATION BOARD OF DIRECTORS NG WAI PIN Chairman / Chief Executive Officer DR TAY KIANG MENG Executive Director / Chief Scientist / Chief Sustainability Officer NG CHEE WHYE Independent Non-Executive Director GERALD CHIU YOONG CHIAN Non-Independent Non-Executive Director KOH HUEY MIN Independent Non-Executive Director YM RAJA JASTINA ADLINA BINTI RAJA ARSHAD Independent Non-Executive Director AUDIT COMMITTEE Ng Chee Whye (Chairman) Koh Huey Min YM Raja Jastina Adlina Binti Raja Arshad NOMINATION COMMITTEE YM Raja Jastina Adlina Binti Raja Arshad (Chairman) Ng Chee Whye Gerald Chiu Yoong Chian Koh Huey Min REMUNERATION COMMITTEE Ng Chee Whye (Chairman) Koh Huey Min YM Raja Jastina Adlina Binti Raja Arshad
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 3 99.9% Frontken Philippines Inc. 100% Frontken (East Malaysia) Sdn Bhd 100% Frontken (Johor) Sdn Bhd FRONTKEN MALAYSIA SDN BHD FRONTKEN (SINGAPORE) PTE LTD PT FRONTKEN INDONESIA ARES GREEN TECHNOLOGY CORPORATION TTES FRONTKEN INTEGRATED SERVICES SDN BHD 100% 95% 92.5% 45% GROUP CORPORATE STRUCTURE As At 27 March 2024 Frontken Corporation Berhad 200401012517 (651020-T) 100%
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 4 OUR VISION, MISSION AND PROFILE Frontken Corporation Berhad, listed on the Main Market of Bursa Malaysia Securities Berhad, has since its inception in 1996, established itself as a world leading service provider of advanced precision cleaning and surface treatment for semiconductor process chamber parts and repair and maintenance services for the oil and gas industry. The Group uses cutting edge technology including advanced precision cleaning, advanced surface treatment and specialty spray coating to extend the lifespan of the high precision tools/equipment used in the fabrication of wafers, while significantly improving its customer’s process efficiency, operating and maintenance costs. The Group’s continuous focus on research and development helped to improve our customers’ process tool part optimisation. As a result, we were able to constantly exceed customers expectation by re-designing some of the tools to further increase the parts’ shelf life and at the same time reducing impact on the environment. The Group’s customer portfolio comprises key players in the semiconductor, optoelectronics, oil and gas and petrochemical industries around the world. To date, the Group has facilities in Singapore, Malaysia, Taiwan, the Philippines, and Indonesia with 1360 employees. OUR PROFILE To be the leading service provider in the industry we serve. To serve our customers with complete satisfaction which includes not only the most competitive price and fastest delivery time but also the highest technical performance and reliability for all our services and products. OUR VISION OUR MISSION
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 5 OUR SERVICES SEMICONDUCTOR ADVANCED PRECISION CLEANING Advanced Precision cleaning and surface treatment of vacuum processes equipment parts in the semiconductors and TFT industries. Decontamination of newly manufactured parts and routine maintenance. Kit management of semiconductor manufacturing components. ADVANCED SURFACE TREATMENT & SPECIALTY COATING Advanced Surface treatment services include thermal spray coatings, arc spray coatings, precision anodisation and precision texturing and polishing. Protection, lifetime extension, performance and efficiency improvements via advance surface treatment technology such as cold build up treatment, plating, plating & conversion coating, and specialised plasma transferred arc welding. ENGINEERING ROTATING EQUIPMENT Equipment maintenance and overhaul, mechanical fitting & assembly, dynamic balancing, heat treatment, on site machining, metal stitching, and laser alignment.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 6 FINANCIAL HIGHLIGHTS REVENUE (RM’000)‘， PROFIT BEFORE TAX (RM’’000) EARNING BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (RM’’000) NET PROFIT (RM’’000) 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 600,000 500,000 400,000 300,000 200,000 100,000 0 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 250,000 200,000 150,000 100,000 50,000 0 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 339,911 368,319 450,222 517,183 96,261 114,253 149,866 174,790 114,835 133,343 168,156 193,212 188,358 69,170 81,968 104,504 123,292 2019 2020 2021 2022 2023 RM’000 RM’000 RM’000 RM’000 RM’000 SEGMENTAL REVENUE – BY CUSTOMER LOCATION Singapore 53,866 46,586 48,278 55,959 52,606 Malaysia 65,873 51,417 63,227 86,983 93,362 Taiwan 186,018 235,121 303,561 337,556 316,923 Others 34,154 35,195 35,156 36,685 37,258 339,911 368,319 450,222 517,183 500,149 SEGMENTAL REVENUE – BY INDUSTRY Semiconductor 265,975 311,374 378,685 413,322 383,174 Oil & Gas 57,435 42,451 50,419 82,500 97,459 General* 16,501 14,494 21,118 21,361 19,516 339,911 368,319 450,222 517,183 500,149 * Comprises power generation, marine, steel, cement, wood processing, pulp & paper, printing, agriculture, industrial manufacturing, food, construction and other sectors. 500,149 167,066 111,951
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 7 FINANCIAL HIGHLIGHTS (CONT’D) SUMMARISED GROUP FINANCIAL POSITION AS AT 31 DECEMBER (RM’000) 2019 2020 2021 2022 2023 Non-Current Assets 181,523 175,361 257,937 300,195 307,538 Current Assets 334,202 442,910 460,699 505,626 577,887 Total Assets 515,725 618,271 718,636 805,821 885,425 Share Capital 118,925 118,925 118,441 118,441 118,441 Reserves 258,047 321,070 382,415 430,028 522,726 Shareholders’ Equity 376,972 439,995 500,856 548,469 641,167 Non-Controlling Interests 21,776 27,039 34,225 39,454 46,735 Total Equity 398,748 467,034 535,081 587,923 687,902 Non-Current Liabilities 15,053 12,826 22,295 31,999 31,109 Current Liabilities 101,924 138,411 161,260 185,899 166,414 Total Liabilities 116,977 151,237 183,555 217,898 197,523 Total Equity and Liabilities 515,725 618,271 718,636 805,821 885,425 SUMMARISED GROUP CASH FLOWS YEAR ENDED 31 DECEMBER (RM’000) 2019 2020 2021 2022 2023 Net Cash Flows From Operating Activities 114,901 119,733 138,775 142,863 143,999 Net Cash Flows For Investing Activities (12,113) (11,900) (86,212) (58,685) (8,708) Net Cash Flows For Financing Activities (33,711) (33,949) (61,084) (50,629) (71,801) Net Increase/(Decrease) in Cash and Cash Equivalents 69,077 73,884 (8,521) 33,549 63,490 Effect of exchange differences 1,652 6,248 11,079 (8,467) 13,440 Cash and Cash Equivalents at Beginning of Year 148,940 219,669 299,801 302,359 327,441 Cash and Cash Equivalents at End of Year 219,669 299,801 302,359 327,441 404,371 FINANCIAL ANALYSIS 2019 2020 2021 2022 2023 Turnover growth 3.9% 8.4% 22.2% 14.9% -3.3% Profit Before Tax Growth 27.3% 18.7% 31.2% 16.6% -4.4% Net Profit Growth 32.4% 18.5% 27.5% 18.0% -9.2% Pre-tax Profit Margin 28.3% 31.0% 33.3% 33.8% 33.4% Net Profit Margin 20.3% 22.3% 23.2% 23.8% 22.4% Return on Average Shareholders’ Equity 19.7% 20.1% 22.2% 23.5% 18.8% Return on Average Total Assets 14.4% 14.5% 15.6% 16.2% 13.2% Earnings Per Share (Sen) - Basic * 4.4 * 5.2 6.7 7.8 7.1 - Diluted ^ 4.4 ^ 5.2 # 6.7 # 7.8 # 7.1 * The earning per share have been adjusted to reflect the bonus issue of two for every one existing ordinary share which was completed on 30 April 2021. ^ The Group has not issued any dilutive potential ordinary shares and hence, the diluted earnings per share is equal to the basic earnings per share. # The potential conversion of warrants is anti-dilutive as its exercise price is higher than the average market price of the Company’s ordinary shares during the current financial period and hence, the diluted earnings per share is equal to the basic earnings per share.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 8 CHAIRMAN’S MESSAGE MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL PERFORMANCE This is the first time in many years that we have not reported a growth in both our revenue and earnings. Nonetheless, the result is still a commendable one considering the overall weakness in the main segment that we operate in. The revenue for 2023 was RM500.1 million, a slight decrease of 3% compared to last year due to lower contribution from all our subsidiaries except for the ones in Malaysia and the Philippines. The Group’s profit before tax for the year was at RM167.1 million, a 4% decrease from the preceding financial year. Our earnings before interest, tax, depreciation and amortisation (“EBITDA”) stood at RM188.4 million. Our profit after tax (“PAT”) was RM124.3 million, a decrease of 8% compared to RM135.2 million recorded a year ago. During the year, the Group continued to generate a positive cash flow of RM144.0 million from our business operations. The Group’s capital expenditure (“CAPEX”) for the year for property, plant and equipment was at RM15.2 million. Despite the cash outflows from dividend and CAPEX, the Group’s total cash balance as at 31 December 2023 remained strong at RM417.0 million. The Group’s financial position at the end of FY2023 continued to be strong with total assets standing at RM885.4 million, an increase of 10% compared to the previous year. We will endeavour to pay a sustainable dividend and return profits to shareholders that commensurate with the performance of the Group. In 2024, the Company declared a dividend of 2.2 sen per share amounting to RM34.6 million. We believe that we will be able to continue with a sustainable dividend payment, taking into consideration our financial performance, capital commitments, acquisition related activities and reserves, among others. Dear Shareholders, On behalf of the Board of Directors (the “Board”), I’m pleased to present to you the Annual Report and Audited Financial Statements of the Group for the financial year 2023 (“FY2023”). As part of this Annual Report, we have also included the Management Discussion and Analysis to provide our shareholders with a more insightful and informative details of the Group’s operation and performance. Despite a challenging operating environment, our business continued to demonstrate incredible resilience, thanks to our strong fundamentals and team of dedicated employees. It is a testament to our solid foundation, careful planning, and our flexibility to adapt to the rapidly changing business landscape.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 9 CHAIRMAN’S MESSAGE (CONT’D) REVENUE (RM’000) 600,000 500,000 400,000 300,000 200,000 100,000 - CAGR +10% 190,611 261,844 339,911 222,717 296,580 368,319 250,543 327,218 450,222 517,183 2013 *2014 *2015 2016 2017 2018 2019 2020 2021 2022 2023 500,149 CAGR +22% EBITDA (RM’000) 250,000 200,000 150,000 100,000 50,000 - 26,106 51,685 114,835 41,544 65,550 133,343 45,831 93,484 193,212 168,156 2013 *2014 *2015 2016 2017 2018 2019 2020 2021 2022 2023 188,358 PAT (RM’000) 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - 465 27,286 74,228 18,685 36,408 88,317 19,824 57,002 135,168 114,222 2013 *2014 *2015 2016 2017 2018 2019 2020 2021 2022 2023 CAGR +75% 124,339 * Note: Excluded the one-off ATB project for a like-for-like comparison.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 10 OVERALL 2023 The main challenge facing the Group’s operations last year was the overall weakness in global demand in the front end semiconductor industry. This was especially the case for our semiconductor segment in the first half of the year where activities were sluggish. To that end, the Group took various measures to safeguard its profitability, namely managing its costs and at the same time continue to explore new opportunities. The Group’s engineering business, on the other hand, performed very well with a record breaking bottom line. This is a classic case of perseverance paying off in the long run. We continued to hold our annual executive team meetings where we reviewed the individual unit’s performances, exchanged ideas and set goals for the coming years. We set out business strategies and plans for each business unit according to their strengths, opportunities and market conditions. During the year, we also worked on exiting the non-strategic business such as our operation in Indonesia. It is still a work in progress and announcement, where necessary, will be made in due course. OUR WORKFORCE We believe we are where we are today due to our amazing team. We place strong emphasis on developing and bringing out the best in our employees. During the year, we continued to encourage our employees to acquire new knowledge through continuous learning to enable them to stay on top of the industry trends and continue to be the leader in the space we operate in. Various trainings, seminars, workshops, and networking activities were conducted to allow our employees to have the opportunities to learn and master new skills set. As always, we aim to be an employer of choice. To that end, we will continue to invest in our people through various performance-based incentives, competitive benefits and skills development programmes that allow for advancement opportunities within the Group. Every year, we will look into our employees’ compensation package and make adjustments to reflect their achievements and contribution based on meeting the key performance indicators that include both qualitative and quantitative measures. We believe that it is vital to ensure that all our employees are compensated fairly for their skills and hard work and at the same time be in line with the current market standards. ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (“ESG”) AND SUSTAINABILITY ESG is an integral part of our company’s culture and strategy. We are focused on making a positive and sustainable impact wherever we are at, from the Board and the leadership team, across all our businesses and at all levels of our workforce. We strongly believe that acting responsibly and with integrity is the only way to build and manage a business over the long term. Environment – We are constantly looking at ways to further improve and see how we can make positive impact to the planet. Our strategy is underpinned by various sustainability goals and targets that will enable us to measure our progress toward reaching our vision. We have been working with our customers in addressing the environmental challenges, including the transition to a net zero carbon economy. Our research and development (“R&D”) team continued to focus on where we can improve and deliver solutions that maximise benefits to the environment and society. During the year, we continue to measure and look at ways where we can reduce greenhouse gas (“GHG”) emissions associated with our operation. We strive to minimise energy consumption in our workplace and at the same time improve on our operational performance in the areas of GHG emissions and energy, waste and water usage. In 2023, through our efforts and continued collaboration with our customers, since 2018, we have adopted the equivalent of 3,183,631 KW of electricity using solar energy, an accumulative savings of 394,517 tons of recycled DI-water, and accumulative savings of 460,807 kg of recycled waste in our operations. We have also set a long-term target of reducing our Emissions Intensity – to stabilise emissions with the aim to achieve Net Zero Emissions by 2050. For more details specifically on our environment and climate change efforts, please visit our website at www. frontken.com for the report titled “Frontken Sustainability Climate Change Report 2023”. CHAIRMAN’S MESSAGE (CONT’D)
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 11 Social – We believe it is important that we give back to the community we live in and step up for them when they needed our support. We did this through various initiatives over the last years. For example, we believe that by helping and cultivating our younger generations/ interns from various backgrounds as well as hiring underprivileged persons will help them to be independent and at the same time allows them to be self-sufficient and to have equal opportunities in the society. Additionally, our employees actively participate in activities such as blood donation drives and support for vulnerable and less privileged groups. Over the years, we continued to foster staff wellness and development, maintain safe workplace, promote inclusion and equality, provide equal opportunities, encourage training and support retention of our talented people, among others. We believe by creating a happy workplace and good morale will in turn boost productivity as a whole. In 2023, we recorded an employee retention rate of 98%, achieving 103% of our target goal. During the year, we continued our engagement with suppliers, customers and other stakeholders. We ensure that we provide our customers with the best services and good selling practices. Governance – The Board is responsible, among other things, for reviewing the Group’s strategy, its risk management and ensuring that there is a proper system of internal control in place. In the past few years, the Board had also discussed and established plans in the succession of the leadership team. We have a strong and stable Board consisting of Directors with a wide range of relevant knowledge, skills and experience, as more particularly set out in our Annual Report pages 20 to 22. In addition, we actively engage with our shareholders through investor days, conferences and meetings in different locations around the world. These interactions with our potential shareholders and existing shareholders throughout the year provide us with valuable insights and help us refine our strategic priorities and our ESG goals. More information on our Governance can be found in the Corporate Governance and Sustainability Report 2023. Further details on the Group’s Sustainability initiatives and achievements for FY2023 are available at the Sustainability section of this Annual Report and the full report on our website at www.frontken.com. AWARDS AND RECOGNITION Frontken, for the third time, was selected as “Forbes Asia 200 Best Under a Billion Company” in FY2023. According to Forbes methodology, the list recognises 200 companies with long-term sustainable performance across a variety of metrics from a universe of 20,000 publicly traded companies in the Asia-Pacific region with annual sales above US$10 million and below US$1 billion. This recognition means a lot to us and it motivates us to work harder to achieve greater heights. In 2023, once again we won The Edge Malaysia ESG Awards under the category “Most Improved Performance Over Three Years”. The awards are a reflection of our commitment in our work in ESG and serves as an encouragement for us to do better and continue to pursue our long-term objectives in this area. Additionally, the Group has been a constituent for the FTSE4Good Bursa Malaysia and FTSE4Good Bursa Malaysia Shariah Index since 2021. CHAIRMAN’S MESSAGE (CONT’D)
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 12 During the year, the Group’s subsidiaries also received numerous recognitions and awards from our customers and local authorities in areas including excellent business performance and ESG initiatives. These awards inspire us to continue what we have been doing and a testament that we are on the right path in achieving our goals. Selected as Forbes Asia 200 Best Under a Billion Company in FY2023 and the event ceremony. One of the Awards we received – Production Support and & ESG collaboration Award CHAIRMAN’S MESSAGE (CONT’D) The Edge Malaysia ESG Awards 2023 Most Improved Performance Over Three Years RM800M to RM5B Market Capitalisation Gold
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 13 BUSINESS OVERVIEW SEMICONDUCTOR As announced by the Semiconductor Industry Association (SIA), the global semiconductor industry sales totalled $526.8 billion in 2023, a decrease of 8.2% compared to the 2022 total of $574.1 billion, which was the industry’s highest ever annual total. As a result, demand for our semiconductor’s services also weakened slightly. We saw the overall industry to be relatively subdued during the first half of the year, and only gradually gained momentum towards the second half. Nevertheless, despite facing an ongoing volatile and weak business landscape, we managed to overcome these hurdles by tapping into our strong fundamentals and sturdy balance sheet. As indicated in my statement last year, we took the opportunity to work on new projects and fine tuning our operations during the slower period in anticipation of busier years to come. As the nodes get smaller and the process of making chips become exponentially harder, so too are our cleaning processes and technology to cater to these developments. The cleaning requirement for the chamber process parts has become more and more stringent, hence the need to achieve close to zero particle contamination has become more crucial than ever – even a single speck of dust could be damaging to our customers’ production. Therefore, our ultra-high purity advanced precision cleaning process is highly precise to ensure that the end result is of the highest quality to meet, in most instances exceed, our customers’ specifications. To ensure that we comply with our customers’ requirements, the cleaned parts are measured using the most advanced metrology systems and computerised data station. During the year, our R&D team continued to work closely alongside our customers to support them as they continue to advance in the leadingedge semiconductor technology. We are constantly exploring new ideas or improve those that already exist, especially in the area of ESG, where we utilise more environmentally friendly materials and automate some aspect of our processes. Other than growing organically, the Group continues to look for opportunities and possibilities such as potential mergers and acquisitions in the semiconductor space. We will keep our shareholders updated through our Company’s announcement should any of our endeavours materialise. As reported by World Semiconductor Trade Statistics (“WSTS”), the contraction in 2023 is to be followed by a robust recovery, with an estimated growth of 13.1 percent in 20241. Additionally, based on our conversations with our customers, we are cautiously optimistic that the performance of this segment will be more than satisfactory this year. Source: 1 WSTS Semiconductor Market Forecast Fall 2023 REVENUE SPLIT 2023 (%) 23% 77% Semiconductor Engineering An employee operating one of the equipment in our facility. An employee performing visual inspection using Black Light (Ultraviolet) before final packaging process to confirm that there are no fibres/substrate microcracks. CHAIRMAN’S MESSAGE (CONT’D)
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 14 Our employees at our production line aisle Taiwan – In FY2023, AGTC recorded a revenue of RM 327.8 million, a slight decrease of 6% compared to the previous year mainly due to a lower-than-expected semiconductors’ fabs utilisation rate. We began to see a slow-down in activities by our customers early in the year. As such, during the start of the year, we took various measures such as reducing unnecessary spending, minimise expenses, optimising workforce, and focus on fostering strong relationships with customers and suppliers. There were no easy solutions, but we did not waver and continue to not only deliver on short-term expectations, but focus on our long-term goals leveraging on our strength and capabilities. Our hard work paid off early this year when our customer qualified us for a few key projects that we have been working with them for the past 12 to 18 months. These projects, we believe will contribute positively to the Group’s performance. For Plant 2, we are making good progress and have already started with the new advanced cleaning technology that was mentioned in my statement last year. We believe that Plant 2 will allow us to gain efficiency improvement in the long run and at the same time strengthen our position as the leading advanced high precision chamber parts service provider in the region for many years to come. Our strategy has always been to invest for long-term sustainable growth. To that end, we will continue to look for new land for future expansion should Plant 2 runs out of capacity. Frontken Singapore (Semicon) – The ongoing semiconductor slowdown, exacerbated further by rising manpower and material costs and limited pool of local talent has had quite a big impact to our business. To mitigate the situation, we renegotiated some of our contracts with our customers to adjust prices for certain parts so that the same may be more aligned with the increased cost that we have been absorbing since the start of the pandemic. We are grateful to our customers for understanding our plights and agreeing to our proposed price re-alignment that will take place this year. We have also made considerable efforts such as streamlining our workforce, optimising our processes, and initiating continuous improvement projects to help boost profitability of this business unit. Based on some of the preliminary feedback from our customers, we expect business to pick up gradually from the second half of 2024 underpinned by higher utilisation rate of their new fabs in Singapore. CHAIRMAN’S MESSAGE (CONT’D)
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 15 Frontken Malaysia (“FMSB”) – Our precision cleaning business in Malaysia comes under FMSB which operates in Kulim, Melaka and Kuching. FMSB was not spared from the downturn in the semiconductor industry. In the face of these challenges, we remain focused in navigating the same by finding ways to reduce operating costs, providing innovative solutions and adding value to our services. Having said that, the performance of FMSB improved marginally with better revenue and bottom line compared to a year ago. The improved bottom lines was mainly due to continual cost saving efforts including identifying inefficiencies in production and streamlining our inventories. Our foundry customer that are involved in the production of chips for the automotive segment are reportedly expanding their capacity to cater for the higher demand by their end customers. It was announced that they are investing billions of ringgits in Kulim Hi-Tech Park to increase their wide-bandgap chips production capacity. Consequently, we have also made the necessary investment to meet the expected additional demand from our customer and we will continue to do so should the need arises. We are excited with all these new developments which will augur well for our precision cleaning business in Malaysia. ENGINEERING DIVISION In FY2023, our engineering divisions performance had been exceptional, with profits hitting record level in spite of the usual challenges in the oil and gas (“O&G”) industry. Over the last decade, the O&G industry had experienced significant volatility alongside global geopolitical tensions. The COVID-19 pandemic has also plunged the global crude oil price into one of its lowest in recent years. Thankfully, our business gradually gained momentum in 2022 and 2023 as a result of improved activities in this segment which in turn contributes to a much-improved bottom line to our business in this segment. With a mix of bullish and bearish views on O&G, we believe our business in this segment will continue to fluctuate depending on the market condition. However, with our many years of experience and our long-term strategy, we are cautiously optimistic, that this segment will continue to contribute positively to our Group’s performance in the coming year. Palinpinon HP Diaphragm Repair CHAIRMAN’S MESSAGE (CONT’D)
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 16 CHAIRMAN’S MESSAGE (CONT’D) TTES Frontken Integrated Services – Our business in this unit continued to do exceptionally well compared to the year before as we saw reduced disruptions to the supply chain as oil prices stabilise. Despite sales price pressures from customers and stiff competition, the continuous tweaking of TTES business strategies and selective investments throughout 2023 yielded their best ever performance in recent times. Other than improved activities in Kemaman, we also saw increased orders flowing in at our facility in Pengerang, Johor. The facility was completed in 2022 to support the Petronas Refinery and Petrochemical Integrated Development (RAPID) and Pengerang Integrated Complex. Our long-term plan will be to continue to maximise our new assets, enhance strategic local and foreign collaboration partnership that supplement our in-house capabilities, broaden our scope of services and products, participate in more work categories and enhanced engineering works. Human resource management and retainment will be crucial for us to expand our capabilities and in becoming a leading O&G service provider. We continue to aspire to be the most sought after, reliable and efficient one-stop service centre for O&G companies, covering all aspects of customers’ maintenance needs, EPCC and turnaround supports. We will continue with our business plan to expand joint tendering with selective partners to capture long-term integrated service contracts and expand our market base further. Frontken Singapore (Engineering) – In 2023, we continued to achieve an improved financial performance as a result of better market condition. The continual engagement to tap into the non-traditional type of industries, new projects from non-traditional service offering and upturn in the O&G sector also helped our cause. Despite facing competitive pricing pressure, lack of suitable skilled candidates and increased cost, we were able to overcome these hurdles by managing our resources wisely and cross training our skilled employees to enhance production efficiency. During the year, we saw increased activities for thermal spray processes from our existing customers and parts fabrication project for solar panel manufacturers. Activities for rotating equipment such as compressors and blowers as well as static component from petrochemical complexes in Jurong Island are expected to increase with upcoming planned shutdowns. We believe revenue for this portion of our business will continue to contribute positively to the Group’s performance. Moving forward, we will continue to seek opportunities to tap into new markets such as consumer products’ manufacturers with continual emphasis on O&G and petrochemical industries. Frontken Philippines – The Group’s operation in the Philippines achieved a revenue of RM15.1 million, an increase of 9% compared to the year before attributable to additional projects from the power industry. The uptick in revenue coupled with ongoing savings initiatives contributed to an operating profit of RM2.1 million, an increase of 7% year on year. Major Overhauling of Generator
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 17 CHAIRMAN’S MESSAGE (CONT’D) The enhancements in our capabilities, specifically the Large Vertical Lathe Machine and Cold Metal Transfer Welding Machine, have empowered us to undertake larger-scale projects concurrently. This has allowed us to meet deadlines and uphold the stringent quality standards demanded by our customers. Our focus will be in the power generation industry as we believe significant grow area for us to remain the same as the Philippines’ Government aims for energy self-sufficiency. Moving forward, we will continue to enhance our competency through comprehensive training initiatives and strategic partnerships with industry and technology experts. These efforts are integral to our goal of becoming recognised as experts in our field of services, ensuring that we deliver top-notch solutions and remain at the forefront of the industries we serve. OUTLOOK We believe there are many organic growth opportunities ahead of us, particularly in the semiconductor front end space. With that in mind, we will continue to explore the same to develop our core businesses and continue to take a pragmatic approach towards the development of our customers and partners. We will continue to take a long-term view of the industry and our business while making the most of our unique strengths. We believe that with our leading market position and the strategic actions we have taken over the years will allow us to benefit from the longer-term growth in the years ahead. We remain cautiously optimistic in our ability to deliver increasing shareholders return through underlying profit growth and sustainable dividend payment. APPRECIATION I would like to take this opportunity to thank our Board of Directors for its continuous guidance, strategic advice and steadfast support throughout the year. On behalf of the Board, I would like to welcome our new Independent Non-Executive Director, YM Raja Jastina Adlina Binti Raja Arshad who joined the Board in August of last year. We believe her broad set of skills and experience will be an asset to the Company and we look forward to working with her. I would also like to thank each and every one of my colleagues for their relentless dedication, sacrifices, and hard work during the year, without which none of this would be possible. I would like to thank our customers for their trust and confidence in us. I am also extremely grateful for their understanding, continued business and the opportunities to work with them. To our business associates, various ministries, government agencies and regulators of the countries where we operate in, we appreciate your support and trust that you have given to us. Lastly, I would like to thank all our loyal shareholders, for your ongoing support and trust in us. We will continue to do our very best in delivering the expected return to all of you.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 18 FINANCIAL REVIEW REVENUE The Group’s revenue of RM500.1 million for FY2023 was 3% lower than that achieved in the previous year mainly due to slower demand from the semiconductor industry. RESULTS OF OPERATIONS IN RM’000 REVENUE 517,183 500,149 3% 2022 2023 NET PROFIT 123,292 111,951 9% 2022 2023 174,790 167,066 PROFIT BEFORE TAX 4% 2022 2023 193,212 188,358 EBITDA 3% 2022 2023 135,168 124,339 PROFIT AFTER TAX 8% 2022 2023 37.4% 37.7% EBITDA MARGIN 0.3% 2022 2023 REVENUE 2023 2022 % change (by customer location) RM’000 % RM’000 % in revenue Taiwan 316,923 63 337,556 65 -6 Malaysia 93,362 19 86,983 17 7 Singapore 52,606 11 55,959 11 -6 Others 37,258 7 36,685 7 2 Total 500,149 100 517,183 100 -3
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 19 CASH FLOWS IN RM’000 353,885 NET CASH 27% 2022 2023 90,238 129,890 FREE CASH FLOW 44% 2022 2023 52,660 15,244 CAPITAL EXPENDITURE 71% 2022 2023 319,727 411,473 WORKING CAPITAL 2022 2023 29% 277,883 FINANCIAL REVIEW (CONT’D) An analysis of revenue by customer location showed weaker demand from our customers in Taiwan and Singapore, resulting from a slowdown in the global semiconductor market. The improvement in the Group’s local business was largely due to increased orders from the various contracts for the provision of engineering services, manpower supply and also mechanical rotating equipment services and parts that the Group has with the oil majors. EARNINGS The Group’s earnings before interest, tax, depreciation and amortisation (“EBITDA”) for FY2023 was RM4.8 million or 3% lower than that achieved in the preceding year mainly due to lower revenue from our subsidiaries in Taiwan and Singapore. The free cash flow increased by RM39.7 million to RM129.9 million in FY2023 mainly due to higher cash flow generated from operating activities and lower capital expenditure. The net cash generated from operating activities in FY2023 increased to RM144.0 million. Net cash used for investing activities decreased by RM50.0 million to RM8.7 million in FY2023 due to lower capital expenditure. The net cash outflow of RM71.8 million for financing activities consists mainly of repayment of money market loan and payments of dividends. The Group cash and cash equivalents increased from RM327.4 million to RM404.4 million as of 31 December 2023, which will provide the Group with financial flexibility to fund future growth initiatives. Compared to last year, the profit after tax for the Group decreased by 8% mainly due to lower revenue and higher withholding tax imposed on the dividend declared by Taiwan subsidiary. If the Group were to exclude the withholding tax and foreign currency exchange impact from the equation, for a like-for-like comparison, the current year’s performance would have only been 2.5% lower than the preceding year; a very commendable performance under very challenging operating environment for the space the Group operates in. The consolidated net profit attributable to shareholders of the Company for FY2023 decreased by RM11.3 million or 9% compared to the preceding year. This Group’s basic earnings per share decreased from 7.8 sen to 7.1 sen for FY2023. FINANCIAL POSITION The Group’s shareholders’ fund improved from RM548.5 million to RM641.2 million as of 31 December 2023, an increase of 17%. The Group’s total assets were RM885.4 million as of 31 December 2023, an increase of RM79.6 or 10% from RM805.8 million a year ago. It was primarily due to the increase in the Group’s cash and bank balances and fixed deposits with licensed banks by RM56.5 million and the increase in short-term investments by RM20.7 million. The Group’s liabilities decreased by RM20.4 million to RM197.5 million as of 31 December 2023 mainly due to the repayment of the money market loan.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 20 BOARD OF DIRECTORS’ PROFILE NG WAI PIN Chairman / Chief Executive Officer • Aged 58, Male, Malaysian • Appointed to the Board on 10 April 2006 DR TAY KIANG MENG Executive Director / Chief Scientist / Chief Sustainability Officer • Aged 59, Male, Singaporean • Appointed to the Board on 10 April 2006 Ng Wai Pin, formerly a Senior Independent NonExecutive Director of Frontken Corporation Berhad (“FCB”), was re-designated as the Chairman / Chief Executive Officer / Managing Director of the Company on 19 January 2012. He holds a Bachelor of Laws degree from University of Auckland and was admitted to the roll of barristers and solicitors of the High Court of New Zealand in 1989. He then continued practising as a barrister and solicitor in a leading legal firm in Auckland for a number of years before returning to Malaysia where he joined Shook Lin & Bok, a legal firm in Kuala Lumpur. He was admitted as an Advocate and Solicitor of the High Court of Malaya in 1993. He later became a Director and Chief Executive Officer of an oil and gas services company listed on Bursa Malaysia Securities Berhad with regional operations, before returning to private practice in law. From September 2005 to February 2009, he was the Chief Operating Officer of a company listed on the Singapore Exchange Limited and was seconded as the Chief Executive Officer of a company listed on the Australian Stock Exchange. He is also the Executive Chairman of Ares Green Technology Corporation, a public company in Taiwan, R.O.C., a subsidiary of FCB. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company. Dr Tay Kiang Meng holds a Bachelor of Engineering (First Class Honours) in Manufacturing Systems Engineering from University of Portsmouth, and a Master of Science in Advanced Manufacturing Systems and a PhD in Engineering from Brunel University, United Kingdom. He is responsible for research and development leading the Group’s technology roadmap, spearheading research and development (“R&D”) activities, formalising the Group’s quality systems, developing critical manufacturing technologies for FCB’s semiconductor technology and advanced materials engineering, and exploring new technology opportunities for the Group. He has more than 20 years of professional experiences in technology development, R&D, and has led some of the most significant technology innovations in semiconductorrelated manufacturing technology and advanced materials engineering. An engineer and scientist by training, Dr Tay began his professional R&D experience with research think tank, Gintic Institute of Manufacturing Technology, Singapore. Dr Tay has received honours and awards in many of his academic, research and technology development work. Dr Tay also sits on the board of the FCB’s subsidiary, Ares Green Technology Corporation. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 21 NG CHEE WHYE Independent Non-Executive Director • Aged 58, Male, Malaysian • Appointed to the Board on 31 July 2019 • Chairman of Audit Committee and Remuneration Committee, Member of Nomination Committee GERALD CHIU YOONG CHIAN Non-Independent Non-Executive Director • Aged 50, Male, Singaporean • Appointed to the Board on 31 July 2019 • Member of Nomination Committee Ng Chee Whye is a Chartered Accountant with the Chartered Accountants Australia and New Zealand and holds a Bachelor of Commerce degree from the University of Canterbury, New Zealand. He began his professional career with KPMG Peat Marwick in Auckland, New Zealand, gaining experience with clients from varied industries. Following which, he relocated closer to home to assume varied Senior Finance roles with various IT related entities in Singapore and Malaysia, namely Hewlett-Packard Singapore (Pte) Ltd, Creative Technology Ltd and Electronic Data Systems IT Services (M) Sdn Bhd. He subsequently moved on to assume Chief Financial Officer roles with various Wealth Advisory and Fund Management entities at Prudential Fund Management Bhd, AXA Financial Services and Nexus Financial Services Pte Ltd. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company. Gerald Chiu Yoong Chian holds a BA (First Class Honours) in Engineering and Master’s in Engineering (with distinction), both from the University of Cambridge, United Kingdom. He joined Dymon Asia Capital in 2012, helped establish Dymon Asia Private Equity (“DAPE”), and is a member of DAPE’s investment committee. DAPE is focused on making private equity investments in Small and Medium Enterprises in South East Asia, and aims to contribute both capital and expertise to the companies it invests in. DAPE’s current funds are Fund I (SGD300 million), Fund II (USD450 million) and Fund III (USD650 million). DAPE has offices in Singapore, Malaysia and Thailand, and has invested in 29 companies and exited 11 companies across these geographies. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company BOARD OF DIRECTORS’ PROFILE (CONT’D)
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 22 BOARD OF DIRECTORS’ PROFILE (CONT’D) KOH HUEY MIN Independent Non-Executive Director • Aged 58, Female, Malaysian • Appointed to the Board on 1 December 2021 • Member of Audit Committee, Nomination Committee and Remuneration Committee Koh Huey Min is a Fellow Member of the Chartered Institute of Management Accountants and a member of the Malaysian Institute of Accountants. She has more than 30 years of experience in finance, accounting, tax, treasury fields, marketing, business development, property investment and development and shopping complex operations. She was an Executive Director of Berjaya Assets Berhad (“BAssets”) from 23 June 2017 to 31 August 2021. Prior to that, she was attached to PricewaterhouseCoopers and subsequent to that, she worked in Hong Leong Group of Companies as an Accountant. She joined Berjaya Times Square (“BTSSB”), a wholly-owned subsidiary of BAssets in March 1994 as the Head of Finance and Admin. She was appointed as an Executive Director of BTSSB from 8 January 2013 to 31 August 2021. She anchored the overall property development and investment division and also managed the overall operations of Berjaya Times Square Group. She also held directorships in various subsidiaries of BAssets. Currently she is an Independent Non-Executive Director of Scientex Packaging (Air Keroh) Berhad, Paragon Union Berhad and Tropicana Corporation Berhad. She is the Chairman of the Audit Committee of Paragon Union Berhad and Tropicana Corporation Berhad and sits as a member on the various board committees of these public listed companies. She has no family relationship with any other Directors or major shareholders of the Company. She has not been convicted of any offences within the past five years. She has no conflict of interest with the Company. YM RAJA JASTINA ADLINA BINTI RAJA ARSHAD Independent Non-Executive Director • Aged 42, Female, Malaysian • Appointed to the Board on 15 August 2023 • Chairman of Nomination Committee, Member of Audit Committee and Remuneration Committee YM Raja Jastina holds an Economics degree from Liverpool University, England and a Masters in Marketing Communications from Westminster University, England. She is currently the Head of Astro Shaw and Vice President of Malay Nusantara Business at Astro. She spearheads Malaysia’s leading film studio which is behind the highest grossing local movies of alltime. Apart from championing local movie production, her all rounded portfolio includes heading strategy for Astro’s digital brand, driving revenue growth for Astro’s pay per view business, managing’s Astro’s on – air Talent Management business and Astro’s movie distribution division where she looks into IP exportation to regional and international market. She has close to 20 years of business management, media, marketing and branding experience where she has driven Astro’s Malay content strategy and built a strong business network both locally and internationally. She has no family relationship with any other Directors or major shareholders of the Company. She has not been convicted of any offences within the past five years. She has no conflict of interest with the Company.
Frontken Corporation Berhad 200401012517 (651020-T) • ANNUAL REPORT 2023 23 SENIOR MANAGEMENT’S PROFILE GEORGE I. LAGOS President, Frontken Philippines Inc. (“FPI”) • Aged 64, Male, Filipino • Appointed in 2003 George I. Lagos graduated from Don Bosco Technical College, Industrial Technology Course. He has extensive working experience in the oil and gas industry, power and related industrial fields. Prior to joining FPI in 2003, he has held various senior positions in multinational companies and has gathered a wealth of experience that encompasses maintenance of various types of rotating and static machinery in the oil and gas, power and general industry. He was appointed as the President in 2003 and is the chairman of the Board of FPI. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company. MOHD SHUKRI BIN HITAM Managing Director of TTES Frontken Integrated Services Sdn Bhd (“TFIS”) • Aged 57, Male, Malaysian • Appointed in 2000 Mohd Shukri Bin Hitam holds a Bachelor of Science in Aerospace Engineering, Bachelor of Science in Aeronautics (specialised in Aircraft Maintenance Engineering), Associate Science (Diploma) in Aircraft Maintenance Management Technology and Certificate in Airframe and Power Plant Mechanic. He has extensive working experience in engineering related fields. Prior to the incorporation of TFIS, he worked in various organisations as engineer and consulting specialist in rotating equipment and turbomachinery engineering and technical services. He is the Managing Director of TFIS and is responsible to oversee the overall operations of TFIS, engineering and technical services and directs various engineering and technical consultancy services at joint-service and consultancy companies. He has no family relationship with any other Directors or major shareholders of the Company. He has not been convicted of any offences within the past five years. He has no conflict of interest with the Company.
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