Fu Yu Corp - RHB Invest 2016-05-16: Better Quarters Ahead Without Forex Losses

Fu Yu Corp - RHB Invest 2016-05-16: Better Quarters Ahead Without Forex Losses FU YU CORPORATION LTD F13.SI 

Fu Yu Corp - Better Quarters Ahead Without Forex Losses

  • Fu Yu has been performing well operationally with improving gross margins despite its forex losses. 
  • Going forward, we do not expect further forex losses unless the USD continues to depreciate. 
  • Management will likely continue to increase dividends gradually as it transfers excess cash back from its subsidiaries. 
  • With more right-sizing exercises to improve margins, we maintain our conviction BUY and SGD0.29 TP (38% upside).


Topline decline likely to bottom out. 

  • Fu Yu’s topline has been declining since FY13, partially due to its strategy of focusing on projects that are profitable. However, we see signs of this bottoming out, especially in 1Q16 where topline only decreased 10% vs 20-30% previously. 
  • We expect revenue to pick up in subsequent quarters as the company secures new customers, coupled with a ramp-up in production for certain projects relating to the filtration and medical sectors.


Half-yearly dividends can be expected. 

  • Management has highlighted that it is likely to pay dividends half annually, which means in 2Q16, shareholders can expect to receive another round of dividend payout due to the recent implementation of its dividend policy. 
  • We expect a FY16F dividend yield of 10.7%, representing a payout ratio of about 95%.


Key risks are USD depreciation and economic recessions.

  • Maintain conviction BUY. 
  • With more right-sizing exercises resulting in improving gross margins, especially for its China factories, coupled with the absence of forex losses unless the USD continues to depreciate, we expect better quarters ahead for Fu Yu and maintain our conviction BUY, with an unchanged DCF-backed TP of SGD0.29, implying 12.8x FY16F P/E.





Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-16
RHB Invest SGX Stock Analyst Report BUY MAINTAIN BUY 0.29 Same 0.29


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