RHB Securities 2015-08-14: Fu Yu Corporation - 2Q15; Maiden Dividend Declared. Maintain BUY.

FU YU CORPORATION LTD F13.SI

Maiden Dividend Declared

  • 2Q15 results were hit by a one-off increase in tax expense and a one-off forex loss of SGD0.46m due to a weaker USD in June. 
  • We lower our FY15F NPAT by 13%, with our DCF-based TP dipping to SGD0.28 (47% upside). 
  • However, GPM continues to expand to 14.2% from 13.6% in 2Q14. 
  • With the USD strengthening coupled with the CNY devaluation, we expect a much stronger 2H15 and additional forex gains. 

 2Q15 hit by one-offs. 

  • Fu Yu’s 2Q15 topline and NPAT dipped 7.1% and 6.7% YoY respectively, hit by a one-off increase in tax expense as no deferred tax asset was recognised for loss-making subsidiaries, coupled with a one-off forex loss of SGD0.46m due to a weaker USD in June. 
  • However, we expect tax expense to normalise in 2H15. 

 Margin expansion still ongoing. 

  • Due to the group’s ongoing restructuring and cost-cutting efforts, GPM continues to expand to 14.2% from 13.6% in 2Q14. It was also partially aided by projects with higher margins due to more complex steps/design involved. 
  • We expect to continue to see more margin expansion as the company is still in the midst of right-sizing some of its factories, especially in China. 

 Maiden 0.25 cent (SGD) dividend declared for 1H15. 

  • We had expected the treasure chest to be unlocked following the company’s capital-reduction exercise and in 2Q15, a maiden dividend of 0.25 cent was declared. Coupled with the capital-reduction exercise paying out 0.50 cent a share, total dividend YTD will amount to 0.75 cent/share. We expect more dividends to come, especially if Fu Yu continues to perform well. 

 Stronger 2H15 ahead. 

  • With the USD strengthening coupled with the CNY devaluation, we expect a much stronger 2H15 and additional forex gains. However, due to one-offs in 2Q15, we lower our FY15 NPAT estimate by 13%, resulting in our DCF-based TP dipping to SGD0.28 from SGD0.30 (WACC:12%, TG:0%). 
  • We expect its cost-cutting exercise to continue leading to more margin expansion in 2H15. Coupled with a potential dividend yield of 5.6%, we maintain our BUY call on Fu Yu.

Jarick Seet | http://www.rhbgroub.com/ RHB Securities 2015-08-14
BUY Maintain BUY 0.28 Down 0.30


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