CORPORATE INFORMATION
OVERVIEW OF BUSINESS OPERATION
JF Technology Berhad (“JF Tech” or “the Company”), one (1) of the world’s pre-eminent manufacturers of test contacting solutions in test sockets and contact pins for the Integrated Circuits (“IC”) testing industry has reported a 820% increase in the profit after taxation (“PAT”) to RM3.02 million for financial year ended 30 June 2019 (“FYE 2019”) as compared to the preceding year corresponding period. Revenue was lowered by 8% to RM23.0 million in FYE 2019 primarily on exports to the China, United States and Southeast Asia arising from challenging market condition. The Group sees the increasingly growth in North Asia as its efforts to gains market share abroad has gained traction. Earnings before interest, tax, depreciation and amortisation (“EBITDA”) increased 136% to RM4.6 million with an EBITDA margin of 20%.
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Market growth of the Company was lower for the FYE 2019 due to the uncertainties from the prolonged US – China trade war and the lawsuit hearing. On 16 July 2019, the US Court of Appeals for the Federal Circuit has issued an order affirming the judgement in all respect of the District Court’s decision on 19 June 2018. Johnstech International Corp. was awarded with damages amounting to USD1.52 million and this amount was provided for in the financial year ended 30 June 2018 (“FYE 2018”).
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Our test contacting solutions for automotive application contributed 43%, radio frequency (“RF”) application contributed 22% and original equipment manufacturer (“OEM”) contributed 36% revenue respectively to the Company and its subsidiaries (“the Group”) for FYE 2019. Automotive Test Socket solution contributed approximately 26% of all new projects for FYE 2019. For the mobile devices and internet of things (“IoT”) segments, demand for our RF product lines such as Eta, EZ (replacement for the disputed Zigma) and others continued to be encouraging. Sales of the recurring and compounding consumables such as contact pins and elastomers have increased by 24% for FYE 2019 as compared to the preceding year. In addition, sales of OEM products have contributed 36% to the Group’s revenue, mainly to domestic customers including leading test handler manufacturers, outsourced semiconductor assembly and test providers (OSATs) and major multinational semi-conductor manufacturer companies in Malaysia and other geographic.
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Excluding legal fees, the operating profit as measured by EBITDA was higher by 50% to RM6.8 million for FYE 2019 and EBITDA margin has now increased to 30% for FYE 2019 as compared to the preceding year.
Both subsidiaries of the Company, J Foong Technologies Sdn. Bhd. (“J Foong”) and JF Microtechnology Sdn. Bhd. (“JFM”) achieved re-certification of its latest ISO Quality System ISO9001:2015 which includes risk managements in the Quality Management System.
FINANCIAL REVIEW
STATEMENT OF COMPREHENSIVE INCOME
Revenue recorded at RM23.0 million for FYE 2019 which was lowered by 8% as compared to the preceding year. PBT stood at RM3.20 million, representing an increase of 450% for the FYE 2019 as compared to the preceding year. During the FYE 2019, the Company has incurred approximately RM2.20 million on legal fees for the on-going lawsuit in US.
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As a result of the increase in PAT for the FYE 2019, the basic EPS has increased to 1.44 sen for FYE 2019 as compared with the basic EPS of 0.16 sen for FYE 2018.
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The main factors that contributed to the increase in PAT for FYE 2019 was due to an one-off provision of damages of RM6.12 million provided in FYE 2018 in respect of the US Court Order dated 6 August 2018.
STATEMENT OF FINANCIAL POSITION
On the balance sheet front, the financial position of the Group remained strong. The Group continued to maintain a robust position with a working capital of RM14.00 million as at 30 June 2019. Shareholders’ equity has increased from RM28.30 million as at 30 June 2018 to RM31.3 million as at 30 June 2019.
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The Group has negligible borrowings which places it in a strong position to obtain financing to fund future growth of its businesses and investments should there be any opportunities arises.
OVERVIEW OF BUSINESS OPERATION
Operational Risk
a. Competition Risk
The semi-conductor industry is highly competitive, subject to rapid technological changes and new product developments. Many of the Group’s customers are multinational companies in Malaysia and overseas where the selection of the test contacting solutions for their manufacturing processes are based on stringent criteria such as high reliability and sustainability of test performance, good after sales service support and being current with the latest trend in IC packaging.
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The Group is actively and continuously pursuing new product and technology innovations to address the increasing sophisticated needs of its customers. The Group’s regular participations in overseas exhibitions have provided the opportunities for the Group to understand the latest market requirements and keep abreast of the current technological advancements.
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Emphasis is also placed on continuous quality control to ensure that the products meet the customers’ requirements. As the Group’s products are highly customised, after sales service is critical to ensure smooth running at the customers’ operations.
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The Group will continue to strengthen its market position and expand the customers base.
b. Intellectual Property Risk
As a technology company, the Group always emphasise on the importance of staying focus on research and development of new products and enhancing the performance of its existing products. The Group depends heavily on the use of its own intellectual property and technological knowhow. In order to mitigate the intellectual property risk, the Group continues to submit applications for patents for new products which are capable of being patented. In FY 2019, there were seven (7) patents granted or allowed for granting and another nine (9) new patents filed. To-date, the Group has fifteen (15) patents granted in various countries whilst thirty-nine (39) patents are still pending for approval.
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All employees are required to sign a non-disclosure agreement (NDA) to protect the Group’s interest. The Company is in the midst of exploring to invest in Product Data Management software for the financial year 2020 in order to enhance the intellectual property protection.
c. Dependence on Experienced Personnel and Shortage of Skilled Manpower Risk
The Group’s continuous success depends to a certain extent upon the abilities and continued efforts of its existing Directors, key management and technical personnel.
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The Group participates in various career fairs conducted by leading universities in the country to source talents. The Group has also established skill matrixes and provides trainings to close skills gaps of our existing workforce. Besides these efforts, the Group also provides industrial internships to students from technical fields with the aim to developing their potentials to industry readiness. In FYE 2019, the Group had added six (6) new skilled machinists.
d. Financial Risk
The Group’s financial risk is set out under Note 33 of the Notes to the Financial Statements in this Annual Report.
OVERVIEW OF BUSINESS OPERATION
We are disappointed with the outcome of our US lawsuit but we have accepted it and moved on. This outcome only applies to the US. Winning or losing a lawsuit does not change how a product performs. The Group has incurred a total cost of RM16.9 million for this lawsuit.
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We are turning disappointment to blessings. Over the last five (5) years, JF Tech had filed for sixty-two (62) patents and had been granted fifteen (15) patents by the relevant authorities in several countries. Our team was more cohesive and, in these periods, had developed many new products for 5G/RF and Automotive Test Socket solutions. We had a number of replacements products to our disputed Zigma with patents granted namely, Eta and EZ. These colorable different new replacement products are qualified and sold to the market including US for the testing of 5G and RF devices. JF Tech offers the most comprehensive product suite for rocking contacts 5G, RF applications and cantilever contacts for automotive high current and high temperature test contacting socket solution.
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Management envisions further growth in the coming years as the Group is aligned with the market’s high growth applications such as Machine Learning, Artificial Intelligence, Connected Devices and IoT, Data Storage, Mobile Internet, Autonomous Vehicles, Augmented and Virtual Reality, Wireless and Broadband, Medical, Cloud Computing and Security that rely on semi-conductors to enable the applications. With the 5G at the introduction stage and gaining momentum, we are certain 5G ready devices would be in great demand. JF Tech is well position to ride this 5G era with strong demand for our Eta and EZ product lines.
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Now that the lawsuit has settled and behind us, Management anticipates that more projects and demands for our wider range of products to offer and recurring consumables moving forward. Management will also focus on investment into manufacturing capacity, research and development and reliability laboratory facilities, upgrading of information technology, moving up to Industry 4.0 and upgrading of employees’ welfare.
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With the prolonged US – China trade war, Management is cautiously optimistic about its prospect for financial year 2020.
DIVIDEND
In view of the Group’s financial performance and closure of the lawsuit, the Board proposes a final dividend of 0.50 sen per ordinary share for FYE 2019, subject to the approval of the shareholders at the forthcoming Annual General Meeting.
MESSAGE FROM BOARD AND MANAGEMENT
Premised on the above, the Board and Management are optimistic to meet the challenges for the coming years and would deliver results to the shareholders and investors.
APPRECIATION
My sincere appreciation to our valued customers, suppliers, business associates, bankers, authorities and most importantly our esteemed shareholders for their unwavering support and confidence to the Group.
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Last, but not least, I wish to thank my fellow colleagues on the Board for their counselled and support as well as our staff for their invaluable commitments to the Group.
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Thank you.
Dato' Foong Wei Kuong
Managing Director