Fu Yu Corp - RHB Invest 2016-04-11: Top Pick across the manufacturing space

Fu Yu Corp - RHB Invest 2016-04-11: Top Pick across the manufacturing space FU YU CORPORATION LTD F13.SI 

Fu Yu Corp - Rolling Out Pro-Shareholder Policies 

  • Fuyu has implemented a dividend policy of paying out at least 50% of PATMI. 
  • We think it is likely to pay even more, eg 100% of earnings, due to its strong cash-generative operations as well as strong net cash position, which represents about 75% of its current market capitalisation. 
  • We also expect the company to implement its share buyback programmes. 
  • In addition, with recent privatisation and M&A activities heating up, we think that Fuyu could be an attractive target for a takeover, especially by its peers. 
  • Maintain a conviction BUY, with a SGD0.29 TP (47% upside). 


50% of PATMI or more. 

  • Fuyu has implemented a dividend policy of paying out at least 50% of its PATMI. 
  • We think that it is likely to pay out even more of a percentage, such as 100% of earnings, due to its strong cash-generative operations which generate about SGD20m-30m a year, as well as its strong net cash position which represents about 75% of its current market capitalisation, coupled with its plans to just maintain capex around FY15 levels. 
  • This dividend policy would at least reassure shareholders that management is keen to reward them consistently (like we highlighted previously) – which dispels any doubts that FY15’s attractive payout level was a one-off affair. 

Share buyback programme likely to be implemented. 

  • With the excess cash, we think that management is likely to use some of it to implement a share buyback programme, coupled with a pro-shareholder active dividend policy in order to meet the minimum trading price of SGD0.20 as required by SGX. 

An attractive privatisation/takeover target. 

  • With privatisation and M&A activities heating up in the Singapore market recently, Fuyu may be an attractive and potential target for a takeover, especially by its peers, due to its strong cash-generative operations, high net cash position and low valuations. 

Maintain conviction BUY with a DCF-backed TP of SGD0.29. 

  • Fuyu is a safe haven full of cash, with strong cash flow generation and high dividend yield (11.4% in FY16F). 
  • With pro-shareholder policies starting to be implemented, like its dividend payout policy of at least 50% of PATMI, we think that more of such policies could gradually roll out, eg a share buyback programme. 
  • We also think that Fuyu is an attractive takeover target, especially by its peers. 
  • Despite such a tough macro environment, we expect it to tough it out like it has always done and focus on profitability – with additional cost-cutting and right-sizing measures to carry on in FY16. 
  • All in all, we think that Fuyu is a solid investment in tough markets and maintain our conviction BUY, with a DCF-backed TP of SGD0.29 implying 12.8x FY16F P/E. 

Key risks: 

  • Depreciation of the value of the USD and an economic recession.



Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-04-11
RHB Invest SGX Stock Analyst Report BUY MAINTAIN BUY 0.29 Same 0.29


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