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JF Technology

Recommendation: HOLD
Stock Code: 0146 Bloomberg: JFTB MK Price: MYR0.20 12-Month Target Price: MYR0.23 Date: September 2, 2010

Board: ACE Pr i ce 30 Day Movi ng Aver age Price (MYR)


0.40

Sector: Technology
0.35

GICS: Information Technology/Semiconductor Equipment 0.30

Market Value - Total: MYR24.6 mln 0.25

Summary: Listed on Bursa Malaysia Securities in April 0.20

2008, JF Technology Bhd (JF Tech) designs, manufactures 0.15


and assembles test probes and test sockets for the
semiconductor and electronic markets. Vol ume Vol ('000)
8,000

Analyst: Janice Chong 6,000


4,000
2,000
0
Apr 08 Jun 08 Sep 08 Nov 08 Jan 09 Mar 09 May 09 Aug 09 Oct 09 Dec 09 Feb 10 Apr 10 Jul 10

Results Review & Earnings Outlook Recommendation & Investment Risks


 JF Tech’s 4QFY10 (Jun) earnings were below our expectations mainly  We maintain our Hold recommendation, but lower our 12-month target
due to larger tax expense. Excluding this, the results would have been price to MYR0.23 (from MYR0.32) amid our earnings downgrade.
in line with our forecast.
 While we believe the young company’s long-term growth prospects
 Driven by stronger demand for test probes, quarterly revenue grew remain intact, its earnings upside is, however, moderated by its
24.3% QoQ to MYR3.0 mln, culminating in FY10 revenue of MYR8.7 relatively niche business. We also note the stock’s low trading volume
mln vs. our MYR8.8 mln forecast. Nevertheless, its MYR0.7 mln net as well as the past earnings volatility displayed by Mesdaq-listed
profit in FY10 still fell below our MYR1.3 mln earnings estimate given technology sector peers, which may result in share price volatility,
the deferred tax expense on capital allowance recognized in 4QFY10. particularly given the macro-economic uncertainties.

 Going forward, management expects its business outlook to stay  Our target price is based on a FY11 P/BV multiple of 1x (from 1.2x),
positive. Key drivers include: (i) robust demand for customized test which is in line with the median forward P/BV valuation of its global
probes, particularly with its customers investing in test handlers and peer. The 1x target multiple is also within JF Tech’s historical median
capacity expansion in recent months; and (ii) sales recovery after its P/BV range of 0.90x-1.5x.
customer’s win of legal action against a third party for patent
infringement.  Risks to our recommendation and target price include a faster-than-
expected recovery in the semiconductor sector.
 While test probes producers are less susceptible to fluctuation in
industry cycles compared with semiconductor equipment
manufacturers, we think the limited visibility in the chip sector could
dampen JF Tech’s demand growth.

 For our FY11 and FY12 projections, we have reduced our: (i) revenue
forecast; and (ii) EBITDA margin. We are now projecting net profit of
MYR2.2 mln (from MYR3.0 mln) for FY11 and MYR3.1 mln (from
MYR4.4 mln) for FY11.

Key Stock Statistics Per Share Data


FY Jun. 2010 2011E FY Jun. 2008 2009 2010 2011E
Reported EPS (sen) 0.6 1.7 Book Value (MYR) 0.20 0.19 0.31 0.33
PER (x) 35.0 11.2 Cash Flow (sen) 5.5 0.1 1.5 4.0
Dividend/Share (sen) 10.0 0.0 Reported Earnings (sen) 9.1 -0.6 0.6 1.7
NTA/Share (MYR) 0.31 0.32 Dividend (sen) 0.0 1.0 10.0 0.0
Book Value/Share (MYR) 0.31 0.33 Payout Ratio (%) 0.0 NM 1,794.9 0.0
No. of Outstanding Shares (mln) 126.0 PER (x) 2.1 NM 35.0 11.2
52-week Share Price Range (MYR) 0.17 - 0.38 P/Cash Flow (x) 3.5 336.6 13.1 4.9
Major Shareholders: % P/Book Value (x) 1.0 1.0 0.6 0.6
Foong Wei Kuong 50.7 Dividend Yield (%) 0.0 5.1 51.3 0.0
Wang Mei Ling 10.7 ROE (%) 18.7 -2.8 2.2 5.4
*Stock deemed Shariah compliant by the Securities Commission Net Gearing (%) 0.0 0.0 0.0 0.0
**FY08 reflects only 6 months cumulative results
All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 1 of 4
JF Technology
Recommendation: HOLD
Stock Code: 0146 Bloomberg: JFTB MK Price: MYR0.20 12-Month Target Price: MYR0.23 Date: September 2, 2010

Quarterly Performance
FY Jun. / MYR mln 4Q10 4Q09 % Change
Reported Revenue 3.0 1.4 >100
Reported Operating Profit 0.7 -0.1 NM
Depreciation & Amortization -0.4 -0.2 62.6
Net Interest Income / (Expense) -0.1 0.0 NM
Reported Pre-tax Profit 0.6 -0.2 NM
Reported Net Profit 0.0 -0.1 NM
Reported Operating Margin (%) 22.2 -10.0 -
Reported Pre-tax Margin (%) 18.7 -14.6 -
Reported Net Margin (%) -0.1 -9.5 -
Source: Company data

Profit & Loss


FY Jun. / MYR mln 2009 2010 2011E 2012E
Reported Revenue 4.5 8.7 12.5 16.0
Reported Operating Profit -0.5 1.7 3.3 4.6
Depreciation & Amortization -0.8 -1.2 -2.8 -3.1
Net Interest Income / (Expense) 0.2 -0.3 -0.2 -0.2
Reported Pre-tax Profit -0.8 1.3 2.9 4.2
Effective Tax Rate (%) NM 44.2 25.0 25.0
Reported Net Profit -0.7 0.7 2.2 3.1
Reported Operating Margin (%) -10.8 19.5 26.6 28.4
Reported Pre-tax Margin (%) -17.0 14.5 23.5 26.0
Reported Net Margin (%) -15.5 8.1 17.6 19.5
**FY07 Proforma, FY08 reflects only 6 months cumulative results
Source: Company data, S&P Equity Research

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 2 of 4
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Recommendation and Target Price History P rice (M YR)


Date Recommendation Target Price 0.32
New Hold 0.23
21-May-10 Hold 0.32 0.30
28-Aug-09 Sell 0.21
20-May-09 Sell 0.18 0.28
27-Feb-09 Sell 0.17
24-Nov-08 Sell 0.18 0.26
11-Jul-08 Sell 0.22
0.24

0.22

0.20

0.18
Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10

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