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JFTECH (0146): JF TECHNOLOGY BHD: A hidden diamond amid chip craze

SEMICONDUCTOR-RELATED stocks on Bursa Malaysia have been soaring this year, but one particular company has missed the boat.

The company is JF Technology Bhd (JF Tech), which makes highly-customised test contacting solutions for the global semiconductor market.

Since the start of 2021 up till Sept 23, JF Tech’s shares have only eked out a gain of 6%, while the larger technology index surged by about 38%.

JF Tech has declined by about 9% since Aug 24, when the group announced its full-year results for the financial year of 2021 (FY21).

Interestingly, the group had reported its strongest net profit since its listing for FY21, thanks to improved sales and a lower operating cost-to-revenue ratio.

The group enjoys a solid net profit margin of 40%, given its net profit of RM15.2mil against a revenue of RM38.3mil in FY21.

JF Tech is doubling its production capacity and has also partnered with industry giants like China’s Huawei and South Korea’s ISC Co Ltd in the past one year for a more synergistic growth.

Dillon Atma SinghDillon Atma Singh

Hence, it is a wonder why investors have overlooked this stock, at a time when there is an upbeat sentiment on the technology sector’s outlook.

After all, this is the stock that had surged from just 39.5 sen per share in the start of 2020 to RM2.10 on Jan 21, 2021, before it went downhill to RM1.41 as of Sept 23.

It is worth noting that a 3:1 bonus shares issuance was completed on Jan 21.

One possible explanation could be its huge valuation currently, which is one of the highest in the sector.

As of Sept 23, JF Tech’s price-to-earnings ratio (PER) stood at 85.98 times, much higher than some of the industry “big boys” such as Greatech Technology Bhd (65.68 times), Inari Amertron Bhd (41.81 times) and Pentamaster Corp Bhd (57.52 times).

Regardless of the share price movement, JF Tech’s financial and operational performance have been riding strong on the back of robust demand for semiconductors.

The group says it has been experiencing higher demand for all its products across all its key markets such as Malaysia, China, the United States and the Philippines.

JF Tech productsJF Tech products

Going forward, the biggest growth drivers would come from the test contacting solutions for 5G and electric vehicle (EV) products, which the group is manufacturing.

To capture the massive demand, JF Tech has embarked on building a new production facility in Kota Damansara, Selangor that will double its production capacity.

The facility is expected to be completed in the third quarter of 2022.

Speaking with StarBizWeek, chief executive officer Dillon Atma Singh says the new facility would increase the group’s test contactors manufacturing capacity and provide additional space to grow its test engineering services business.

“Besides that, our very own Malaysia Testing Contacting Centre of Excellence will be set up at our expanded facility and it will be equipped with state-of-the-art labs and tools for us to not only increase our manufacturing capacity, but most importantly develop new intellectual property (IP) and products to serve our customers current and future needs.

“In turn, we could seize the opportunities from the overall growth in the semiconductor industry driven by many new applications such as 5G and migration to EV and ultimately contribute meaningfully to our earnings,” he says.

The new facility will also develop test contacting technology for 6G applications via the collaboration between the Malaysia Testing Contacting Centre of Excellence and its twin facility, the Centre of Excellence in Kunshan, China.

“We are very excited with the prospects of being able to work together with Huawei who is our joint-venture (JV) partner in China and the world’s leader in 5G technology with cutting edge facilities and immense research and development resources.

“We expect that our collaboration can accelerate our IP development for 6G test contacting technologies and enable us to remain in the forefront of technology,” he says.

Back in October 2020, JF Tech secured a partnership with Huawei Investment & Holding Co Ltd, via the latter’s wholly-owned subsidiary, Hubble Technology Investment Co Ltd to design, develop, manufacture and supply high performance test contactors in China.Following the partnership, JF Tech says it is the first Malaysian manufacturer of high-performance test contacting solutions to set up a manufacturing facility in China.

By having a direct facility in China, JF Tech hopes to ride on China’s large-scale semiconductor localisation plan and capture the tremendous sales opportunities.

Dillon says the facility’s renovation works have been completed and the installation of equipment is currently ongoing, which will be followed by qualification work.

Production is expected to commence by the early fourth quarter of 2021.

“Our upcoming China Centre of Excellence plant in Kunshan will have the capacity to manufacture approximately 600 test sockets for the first year, and we expect to double the capacity in the second year.

“Our JV partner, Huawei is obviously our first client for our facility in China and yes, we do have other clients from the China market and we continue to aggressively develop our customer base in China tapping on the amazing growth of the semiconductor market there,” Dillon says.

The China plant is poised to become a key growth driver for JF Tech’s top line and bottom line in the ongoing FY22.

Two other growth drivers for FY22 would be the new test engineering services business via the group’s wholly-owned subsidiary, JF TestSense Sdn Bhd, as well as potential partnerships and merger and acquisition (M&A) deals.

Through JF TestSense, Dillon says the group is able to provide total turnkey testing contacting interfacing and test programme engineering services to semiconductor companies globally.

“As for potential partnerships and M&A, we are actively on the lookout for opportunities. We are targeting partnerships that would bring strong synergies like our arrangement with South Korea’s ISC.

“Besides potential partnerships, we also have plans to grow via M&A. We are exploring all opportunities and remain in discussion with potential targets.

“JF Tech’s strong balance sheet can support us in capitalising on any good opportunities,” he says.

As of June 30, JF Tech is in a net cash position, supported by cash and cash equivalents of RM24.8mil.

Beyond FY22, Dillon says there will be two additional growth drivers, namely, the introduction of new game-changing products and monetisation of IPs by licensing.

Elaborating on the group’s partnership with ISC, which is a leading global test solution provider, Dillon says this has enabled JF tech to become a one-stop shop for test contacting solutions.

Currently, there are four essential segments in the overall test socket market space globally.

JF Tech is involved in two of the essential segments – the short rigid pin sockets catering for 5G as well as other high frequency test applications and cantilever sockets for automotive and high-power test applications.

On the other hand, ISC is the world leader for remaining two major segments – the silicone rubber sockets for memory and spring probes sockets for microprocessors and universal test applications

“With all four major test socket offerings under one roof, we can provide complete and seamless one-stop solutions to any semiconductor customer and we can cross-sell ISC’s rubber or spring probe sockets to our current customers who are likely existing users of these products.

“We are making good progress on this partnership, and we expect the pace to accelerate further once we are able to travel overseas to meet our customers.

“We expect to manufacture the spring probe test sockets housing integrating with ISC’s pins at our Malaysia plant as well as our manufacturing facility in Kunshan, China,” says Dillon.

With the materialisation of JF Tech’s growth plans in the coming quarters that could lift its earnings further, only time will tell if investor attention will return to the stock.

https://www.thestar.com.my/business/business-news/2021/09/25/jf-tech-a-hidden-diamond-amid-chip-craze

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