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This article first appeared in The Edge Malaysia Weekly, on February 8 - 14, 2016

 

JF-Tech-Financial_Table_22_TEM1096_theedgemarkets

Foong-Wei-Kuang_22_TEM1096_theedgemarketsACE Market-listed JF Technology Bhd, a homegrown high-performance test contacting solution provider, aims to migrate to the Main Market of Bursa Malaysia within the next two to three years.

According to managing director and CEO Datuk Foong Wei Kuong, JF Technology is open to any opportunity that can add value to the company, which is well positioned to undertake mergers and acquisitions (M&A) in the future.

“I’m not satisfied with (just being on) the ACE Market. It is our target to move to the Main Market within two to three years, so that our company can get better coverage. In fact, we hope to engage more with the investors, media and fund managers this year,” he tells The Edge.

Founded in 1999, JF Technology manufactures and supplies electronic products and components, including test probes and test socket products, to the semiconductor industry worldwide.

Among others, its customers include semiconductor assembly and test services provider Unisem (M) Bhd, automated test equipment manufacturer Aemulus Holdings Bhd, turnkey packaging and test services provider Carsem (M) Sdn Bhd and integrated circuit test handler supplier SRM Integration (M) Sdn Bhd.

JF Technology’s products are selected and specified by these clients to test and screen for defective microchips for major companies in the mobile device and automotive industries, such as Ford, BMW, Dell, Canon and Samsung.

Foong highlights that the global test contacting solution and consumables industry is worth some US$750 million to US$780 million today, and growing.

“At the moment, our market share is still relatively small. But we are in a blue ocean market, which means we are not at the mercy of customers or suppliers,” he says.

In the test contacting market, JF Technology is competing with the likes of US-based Johnstech International and Japan-based Rika Denshi Co Ltd.

Foong, who co-founded JF Technology with his wife Datin Wang Mei Ling, says the company has no problems with rivalry with its competitors and is unfazed by the threat of new faces because the industry has high barriers to entry.

The 55-year-old is the single largest shareholder of JF Technology with a 50.73% stake while Wang, an executive director, is the second largest shareholder with 10.68% equity interest. It is worth noting that the couple has not sold a single share of the company since its shares were floated in 2008.

In its financial year ended June 30, 2015 (FY2015), JF Technology’s net profit almost tripled to RM3.1 million from RM1.1 million a year ago, owing to an increase in the sales of its new product line mix, territorial expansion and gains on the disposal of assets. The group’s revenue grew 54% year on year to RM17.5 million.

In 1QFY2016 ended Sept 30, 2015, net profit doubled to RM2.1 million y-o-y, thanks to higher export sales and the strengthening of the US dollar against the ringgit. Revenue rose 21.6% from RM4.5 million.

Moving forward, Foong expects JF Technology to continue to grow in FY2016 by putting more effort into expanding its markets in the UK, Europe, China and Japan. “FY2016 will be a breakthrough year for JF Technology. We are looking at a strong double-digit growth in revenue and profit,” he comments.

JF Technology has grown its base from 10 customers and one sales office in 2011 to 69 customers and 10 sales offices in 2015. It has a presence in Japan, South Korea, Thailand, the US, Singapore, Taiwan and the UK.

“Currently, exports account for 70% of our sales. Meanwhile, our purchase of raw materials in US dollars is very low. Hence, the depreciation of the ringgit is an advantage for us,” says Foong.

Indeed, he says, RM600,000 out of the RM3.1 million net profit made in FY2015 was from foreign exchange gains.

JF Technology is headquartered in Kota Damansara, Selangor, and its integrated facility has a total land area of 92,000 sq ft, including 46,000 sq ft of manufacturing factory, which is capable of producing 1,200 test sockets every month.

The company has allocated RM14 million for capital expenditure over the next 10 years in order to upgrade its machinery with higher precision and embark on its Plant 2 expansion on the remaining land area of over 40,000 sq ft about four years from now.

While staying focused on its core business, JF Technology is also exploring potential business or M&A deals that fit its portfolio, says Foong.

As at Sept 30 last year, JF Technology was in a net cash position of RM4.3 milllion with gross borrowings of RM4.8 million, some RM3.9 million of which was long-term debt while its cash and cash equivalents stood at RM9.1 million.

In fact, no sector saw more M&A activity last year than the semiconductor industry. For instance, chip maker Avago Technologies Ltd bought its rival Broadcom Corp for US$37 billion cash and stock.

“At least 16 major M&A deals were announced or planned in 2015, with billions of dollars being transacted. This created a lot of excitement in the industry,” says Foong.

However, he stresses that the wave of M&A activity could be a double-edged sword for JF Technology as there will be fewer but bigger customers in the market.

“If our customer acquires another company, their operations will be consolidated but the enlarged company will likely continue to use our products, which means more sales for us. But if our customer is acquired by a bigger company, they probably don’t need us anymore because the enlarged company will have its own suppliers,” he explains.

From a year ago, JF Technology’s shares have risen more than 20% to settle at 82.5 sen last Tuesday, giving it a market capitalisation of RM104 million. The shares are trading at a trailing 12 months’ price-earnings ratio of 25 times.

The company declared a dividend per share of one sen for FY2015, which translates into a relatively low yield of 1.2%, but a reasonable payout ratio of 41%.

Foong believes that it is still in the best interests of JF Technology to conserve funds for further market development activity but the company is considering setting a dividend policy in the future.

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