Fu Yu Corp - RHB Invest 2016-08-15: A Top Performing Manufacturer With Huge Cash Hoard

Fu Yu Corp - RHB Invest 2016-08-15: A Top Performing Manufacturer With Huge Cash Hoard FU YU CORPORATION LTD F13.SI

Fu Yu Corp - A Top Performing Manufacturer With Huge Cash Hoard

  • We expect a better 2H16 if USD remains stable or appreciates in the same period, as over 80% of Fu Yu’s revenue is in USD. 
  • Gross margins will likely further improve, as Fu Yu is right-sizing its China factories as well as improving its utilisation rate by getting more customers and projects with better margins. 
  • We believe Fu Yu will be one of the best performing manufacturers for FY16, despite the difficult macro outlook. 
  • Maintain Conviction BUY, SGD0.29 TP. 
  • A SGD 0.25 cents interim dividend has been declared and we expect more dividends to be given out in 2H16.


Margins expansion to continue in 2H16. 

  • In 2Q16, gross margin improved to 16.4% from 14.2% a year earlier. Going forward, we expect: 
    1. Depreciation costs to continue to decrease; 
    2. Margins improvement from further right-sizing of its China factories; 
    3. Improving utilisation rate, by getting more customers and projects with better margins.


SGD100m net cash hoard, more dividends incoming. 

  • Fu Yu set a minimum 50% NPAT payout dividend policy at the start of this year. As of 2Q16, they have paid out an interim dividend of SGD 0.25 cents. 
  • Fu Yu continues to generate positive cash flow from operations and that is likely to increase further in 2H16. With its cash hoard, we expect management to continue to reward shareholders with more dividends in 2H16. 
  • All in all, we expect a robust dividend yield of 9.5% for FY16.
  • The key risk to our forecasts would be economic recession or slowdown.


Maintain Conviction BUY. 

  • We believe Fu Yu will be one of the best performing manufacturers for FY16, looking at their 2Q16 despite the difficult macro outlook. 
  • Its strong balance sheet and cash flow generation also allow them to reward shareholders with attractive dividends. 
  • Our unchanged DCF-backed TP of SGD0.29 implies 7.5x ex-cash FY17F P/E.




Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-15
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.290 Same 0.290


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