With patent restriction over, JF Technology set to regain foothold in US market

This article first appeared in The Edge Malaysia Weekly on May 13, 2024 – May 19, 2024

A decade after becoming embroiled in a patent infringement lawsuit in the US, one-stop test engineering and test interface solutions provider JF Technology Bhd (KL:JFTECH) is revisiting its US market strategy now that it is no longer bound by a patent restriction.

JF Tech co-founder and managing director Datuk Foong Wei Kuong says the group is now exploring options to re-establish its business presence in the US, as American customers are actively looking for a more competitive high-performance test contacting solution.

“We were previously respecting the past legal constraints. However, the patent restrictions on Zigma expired in April, and thus, the injunction order in the US has been lifted too. In other words, Zigma is now a free bird. We will be returning to the US, but this time, in a different channel,” he tells The Edge in an interview.

After all these years, according to him, JF Tech remains confident in its solutions and knows that it continues to be one of the top-performing products for certain applications, especially for radio frequency (RF) applications.

Foong recalls that the patent infringement legal suit was initiated by JF Tech’s US competitor Johnstech International Corp in June 2014.

“While we fought the patent infringement lawsuit in the US, our product, Zigma, suffered. Many customers wanted our product, which clearly outperformed the competition. However, the lawsuit forced them to look for alternatives.

“Despite being granted the patent for Zigma in September 2015, the US jury still found us guilty. We fought all the way in court, only to be denied justice. Our conviction in the rightness of our case remains unshaken to this day,” he insisted.

Foong is understandably still peeved as after the lawsuit was initiated, JF Tech’s turnover from the US market experienced a slowdown in 2015 and 2016, with the lowest point between 2017 and 2019.

“Despite strong customer demand for our product Zigma, restrictions prevent the sale. During 2017 and 2018, we successfully introduced alternative solutions like EZ. This strategy allowed us to successfully reclaim a portion of our market share,” he says.

Nevertheless, Foong states that revenue contribution from the US market declined in the past five years.

“At one point, the US market used to contribute 25% of our top line but it has dropped to below 10% in our latest full-year results. However, our strong technical and development teams are actively responding to the customer needs in the US. With that, we anticipate bucking the trend in the next 12 months or so,” he remarks.

Foong points out that JF Tech has a culture of continuous improvement in that only solutions exceeding the highest standards reach the market.

“The past four to five years have seen significant market shifts, particularly due to the Covid-19 pandemic. Initially, a surge in work-from-home trends fueled demand for consumer electronics. However, with a return to travel, we are seeing a rising demand for automotive parts,” he says of changing trends, which JF Tech intends to capitalize on, including in the US market.

“More importantly, the IP (intellectual property) for all our products belongs to us; we have close to 100 patents owned by JF Tech, something that we take pride in as a Malaysian homegrown company.

“Plus, given the fact that we are a politically neutral country augurs well for Malaysian businesses scaling their business globally,” he added.

On the US market, Foong talks of different strategies ahead. “We are actively exploring possibilities as a contract manufacturer, as well as the potential to license our solutions and monetize our IP,” he reveals.

Foong, 64, is the controlling shareholder of JF Tech with an equity interest of 50.7% in the company.

He has more than two decades of experience in the semiconductor industry, having established J Foong Technologies Sdn Bhd in 1999 with his wife Datin Wang Mei Ling to manufacture and trade electronic product components.

A check of JF Tech’s Annual Report 2023 shows that among the company’s top 30 largest shareholders are Hubble Ventures Co Ltd, Cosmos Technology International Bhd managing director Datuk Chong Toh Wee, as well as former Malaysian Investment Development Authority (Mida) deputy director-general and philanthropist-painter Yeow Teck Chai.

Navigating a tricky situation

In November last year, JF Tech entered into a joint-venture (JV) agreement with Shenzhen HFC Co Ltd to incorporate HFC Tech Sdn Bhd, a JV company in Malaysia, to engage in activities that include the design and manufacture of electromagnetic interference (EMI ) shielding materials, thermal interface and absorbing materials.

Shenzhen HFC invested RM3.2 million in HFC Tech for 80% ownership, while JF Tech contributed RM800,000 for the remaining 20% ​​of the JV’s registered capital of RM4 million.

Shenzhen HFC is a pioneer in the use of graphene materials for heat dissipation. This groundbreaking material is used in revolutionary artificial intelligence applications as well as the electric vehicle industry.

“Funds invested will be used for operational needs. The production is at our factory in Kota Damansara. Machinery is coming in and we target to start production in June,” says Foong.

Earlier in October 2020, JF Tech had announced plans to team up with Hubble Technology Investment Co Ltd (HTI) — a unit of its Chinese partner Huawei Investment & Holding Co Ltd — to set up a plant at Kunshan, in China’s Jiangsu province.

The plant is designing, developing and manufacturing integrated circuit test sockets and test interface solutions for the Chinese market. It is parked under JFH Technology (Kunshan) Co Ltd, in which JF Tech injected US$500,000 for a 55% stake, while Hubble injected US$1.5 million for a 45% stake. The proceeds were used to fund the acquisition of machines and operations.

“To date, we have both invested a total of US$2.5 million to US$3.5 million. Today, our Kunshan plant is doing very well. “We are currently expanding our capacity to meet the rapidly increasing demand, which continues to outpace supply,” says Foong.

With JF Tech aiming to regain a bigger foothold in the American market but taking into consideration the US ban on Huawei, how does the group ensure that its efforts do not fall foul of US authorities?

Foong stresses that JF Tech’s collaboration with Huawei is in the manufacturing plant in Kunshan, which serves the latter and other customers within the Chinese market.

“Meanwhile, our Malaysian operations cater to the rest of the world. As our products are not on any sanctions list, our plans to re-establish a presence in the US will not be impacted.

“In fact, some American companies in the same industry as us are also operating their manufacturing facilities [in China] and [they] are selling their products there as well,” he elaborates.

Over the last 12 months, shares in JF Tech have gained 19% or 15 sen to close at 89.5 sen last Wednesday, giving it a market capitalization of RM825.06 million. The counter is currently trading at a historical price-earnings ratio (PER) of 90 times.

In comparison, its closest peer FoundPac Group Bhd (KL:FPGROUP) declined four sen or 10% over the same period, to end at 36 sen last Wednesday, which translates into a market capitalization of RM196.86 million. The stock is trading at a much lower PER of 29 times.

JF Tech’s last fiscal earnings were not the best as its net profit dropped 29% to RM12.2 million for the financial year ended June 30, 2023 (FY2023), down from RM17.2 million a year ago due to changes in product mix combined with one-off expenses related to JF Tech’s migration to the Main Market of Bursa Malaysia Securities Bhd, along with a positive tax charge recognized in the preceding year.

In the first half ended Dec 31, 2023 (1HFY2024), JF Tech’s earnings were also lower by 41% to RM4.3 million, compared with RM7.3 million a year before. This was also largely due to the change in product mix contribution as these businesses are still working towards optimal level.

According to AbsolutelyStocks data, JF Tech’s net cash position stood at RM62.4 million as at Dec 31 last year.

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