This article first appeared in The Edge Financial Daily on January 2, 2019

KUALA LUMPUR: Test-contacting solutions manufacturer JF Technology Bhd is looking to expand its revenue contribution from China — currently at around 15% — for the financial year ending June 30, 2019 (FY19).

However, why China amid concerns of repercussions from a full-blown trade war between the country and the US, the two largest economies in the world? For JF Tech managing director Datuk Foong Wei Kuong, it is about seeking opportunities in times of tribulation.

After all, JF Tech counts two US-based companies as its closest competitors. So, the tense trade situation between the two countries could offer opportunities for companies such as JF Tech to gain a bigger market share in China.

“China is in a little bit of trouble. They want to accelerate their technology plans for vision 2025 or Made in China 2025, but to do that they would need to acquire some technologies from the US [but now made complicated].

“So, this is where [we] see much [potential] growth, and that is why we wish to expand there. JF Tech has a long representation and presence in the US and it’s time to be in China to prepare for opportunities arising from China’s Vision 2025,” he told The Edge Financial Daily.

Nonetheless, Foong acknowledged the trade war is not without challenges for JF Tech, given the company also derives about 28% of its revenue from the US, with large multinational semiconductor companies among its biggest customers.

“There is still a cautious sentiment among the US and China companies due to the trade war, and as these two countries are the biggest consumers, a cut in orders from them affects all other countries in the supply chain.

“However, for us, we are fortunate as semiconductor houses are constantly developing new integrated circuit devices with new applications for smartphones, tablets, wearables, as well as for the automotive industry and the Internet of things. And as a provider of test-contacting solutions, we are at the forefront of this,” he said.

Foong also addressed the group’s lawsuit in the US which impacted its financial performance in FY18.

On June 20, 2014, a patent infringement action was filed against JF Microtechnology Sdn Bhd, a wholly-owned unit of the group, by its competitor, US-based Johnstech International Corp, concerning test-contact products sold by JF Microtechnology under the brand name ZIGMA.

After a four-year legal tussle, the US District Court ruled in favour of Johnstech on Aug 6, 2018, and awarded it damages totalling US$1.5 million.

JF Tech made a provision for the amount, equivalent to RM6.11 million in FY18, resulting in a 95% drop in net profit for the year to RM328,000 from RM6.38 million in FY17.

Foong said the group will not be recognising anymore major provisions in connection with the case, except for legal fees amounting to US$200,000.

“The legal case has been concluded in the district court, and has now been moved to the appeal court. If we lose at the appeal court, then the amount we have provided for would be released to [the plaintiff].”

With the case almost coming to a close, JF Tech is looking forward to a better financial performance for FY19, driven mainly by its two test-contacting solutions, Alpha and Gamma, mainly applied for the automotive industry.

To date, the group owns 12 patents in various countries for its products, and 36 patents still pending for approval.

“Patents tell people that our products have innovation. People will also be deterred from imitating our products’ features. However, if some of our competitors do not have the solutions that we do and want to work with us, we may consider licensing our products [for recurring income],” said Foong.

As an exporter, a weak ringgit against the greenback is favourable for the group. It helped the group to achieve its highest quarterly net profit in the three months ended Sept 30, 2018 (1QFY19), since its listing in 2008.

JF Tech saw a net profit of RM2.83 million for 1QFY19, 22.3% higher compared with that in the same quarter a year ago, on the back of a 5.3% growth in revenue to RM7.38 million.

However, its earnings had yet to catch up with its share price, resulting in a high historical price earnings of 95 times for the group.

“Our shareholders, mostly long term, know our company’s prospects are good. It’s just that we had a temporary setback, the legal case — the toughest hurdle we had to go through.

“It took five years for us to transition from an original equipment manufacturer to an original design manufacturer, and we had just started to get global recognition. We still have much space to grow to optimise our business,” he said.

JF Tech shares reached a record high of RM1.38 on Dec 29, 2017. Since then, the stock’s value has almost halved to 71 sen on Monday, with a market capitalisation of RM149.1 million.