Anticipate better quarters ahead. Being one of the top IP owners of high performance test contacting solutions for global integrated circuit markers, JFTECH is set to ride on the fast-growing EV and 5G markets by supplying its patented testing socket. The group currently exports 70% of its revenue, mainly to China, US, Philippines, Thailand, etc. Despite surging 90% YoY in FY21 earnings to RM15.2m (mainly driven by organic growth), we reckon FY22 will be an explosive year for JFTECH owing to additional three growth drivers namely (1) JFH Technology Kusan (2) JFTestSense (3) M&A and partnerships.

JFH Technology Kusan. We opine that the newly established manufacturing facility (to start production in 4QCY21) with Hublle Technology Investment Co Ltd (wholly owned subsidiaries of Huawei & Co Ltd) will enable JFTECH to design, develop, manufacture and supply high-performance test contractors in China market. This is likely to increase the group bottom line and cement its footprint and network in China.

JFTestSense. To recap, in order for JFTECH to further penetrate the testing solution value chain (for higher total ASP), JFTECH had set up a wholly-owned subsidiary JFTestSense to provide test software solutions together with other test interface products such as stiffener, probe card, etc. This division is expected to start contributing from 1QFY22.

M&A and partnerships. The recent agency agreements with ISC Co. Ltd (“ISC”) on 11 Aug 2021 is expected to provide a strong synergy to JFTECH to become a complete one-stop solution to its customers by possessing all four major tests socket offerings. As JFTECH is able to offer all four major test sockets under one roof, every semiconductor manufacturing companies could potentially become a client to JFTECH. With China continuing to pursue self-sufficiency in semiconductors on the back of national strategic and security interests, JFTECH’s outlook is expected to remain promising following the strategic alliance.

Pending a bullish Cup and handle (C&H) pattern. After plunging 58% from a high of RM2.41 (21 Jan) to a low of RM1.01 (31 March), JFTECH staged a sharp rebound to close at RM1.55 yesterday. Currently, the stock is awaiting a C&H formation, with indicators showing uptick bias. A successful breakout above its neckline (RM 1.57) will spur the prices toward RM 1.70-1.75-1.80 territory. Cut loss at RM 1.41.

Source: Hong Leong Investment Bank Research - 8 Nov 2021