Fu Yu Corp - RHB Invest 2016-11-14: Attractive Privatisation/ Takeover Candidate

FU YU CORPORATION LTD F13.SI

Fu Yu Corp - Attractive Privatisation/Takeover Candidate

Fuyu’s 9M16 gross margin improved 2ppt YoY to 16%.
As expected, a second interim dividend of SGD0.25 cents was declared, implying an attractive FY16F dividend yield of 7.9%.
FX losses due to weaker USD dragged 9M16 results.
As many of its peers have been taken out in the past few years, we believe Fuyu is also an attractive privatization/takeover candidate. This is so given the company’s net cash of SGD0.13 cents/share, zero debt, strong cash generation and low capex requirements.

We expect a better 4Q16 results for Fuyu. The company was hit by weaker USD for 9M16 and incurred FX translation losses.
A stronger USD or devaluation of ASEAN currencies would be positive for Fuyu as its revenues are mainly quoted in USD.

Fuyu’s 9M16 gross margin improved to 16% (9M15: 14%). This is due to cost cutting measures coupled with the switch to higher margin projects.
We expect margins to continue to improve on the back of these initiatives.

Fuyu has a strong balance sheet and cash flow generation abilities given its net cash of SGD0.13 cents/share, zero debt and low capex requirements.
In addition, its NAV of SGD0.22/share – of which most of its fixed assets are booked at cost implies that its valuations are significantly lower than current market value. Its peers like Broadway and Chosen were recently acquired at much higher valuations.
We believe that Fuyu is an attractive target for takeover/privatisation by larger industry peers.

We continue to like the company given its improving core business, undemanding valuations and attractive dividend yield of 7.9% in FY16F.
Key risks include weakening USD and economic recession.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-11-14

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