Fu Yu Corp Ltd - CIMB Research 2018-01-09: Plastic Injection Specialist

Fu Yu Corp Ltd - CIMB Research 2018-01-09: Plastic Injection Specialist FU YU CORPORATION LTD F13.SI

Fu Yu Corp Ltd - Plastic Injection Specialist

  • Fu Yu Corp Ltd is an established plastic injection moulding company and management believes that it is one of the largest such suppliers in Asia.
  • Key industries served by Fu Yu include printing and imaging, networking and communications, consumer, medical, automotive and power tools.
  • The company has a net cash balance sheet at end-Sep 2017 and dividend payout policy of at least 50% of net profit.
  • Fu Yu’s historical FY16 P/E of 14.3x was above the industry average of 14.1x, while its FY16 dividend yield of 7.5% was higher than the industry average of 4.3%.



Company description 

  • Established in 1978 and listed in 1995, Fu Yu is one of the largest manufacturers and suppliers of high precision injection moulds and plastic parts in Asia, with manufacturing plants across Singapore (3), Malaysia (2) and China (5). 
  • Fu Yu offers the entire value chain of services, from design and fabrication, to assembly and secondary processes such as surface treatment and ultrasonic welding. Management has estimated that the overall utilisation level was ~50% in 1H17.
  • Fu Yu serves customers from diverse industries, including printing and imaging, networking and communications, consumer, medical, automotive and power tools. The company works with both direct customers (multi-national corporations, MNCs) and leading contract manufacturers such as Venture (VMS SP, Add, TP: S$24.74) and Jabil Inc (JBL US, Not Rated). Our channel checks reveal that some of its existing clients include Hewlett Packard Inc (HPQ US, Not Rated) and VeriFone Systems Inc (PAY US, Not Rated).


Competitors 

  • Industry peers are Sunningdale Tech (SUNN SP, Add, TP: S$2.79) and Memtech International (MTEC SP, Add, TP: S$1.33). These companies have overlapping operating segments, such as automotive, consumer electronics, medical/healthcare and telecommunications/networking.


Recent changes 

  • On 20 Apr 2015, Fu Yu announced a capital reduction exercise to write off accumulated losses and return 0.5 Scts to shareholders. Subsequently, Fu Yu declared 0.25 Scts DPS in 2Q17, as well as in 3Q17. In 4Q17, Fu Yu declared a final DPS of 1.0 Scts. 
  • On 8 Apr 2016, Fu Yu announced a dividend payout policy of at least 50% of its profit after tax attributable to the owners of the company. DPS for FY16 was 1.50 Scts and in 9M17, Fu Yu has declared 0.50 Scts DPS.
  • On 23 Oct 2017, a substantial shareholder, Mr Ng Hock Chin’s stake was reduced to 1.16% at an average transacted price of S$0.18. Previously, on 3 Mar 2014, Mr Ng made a conditional cash partial offer for Fu Yu shares at S$0.09 per share.
  • According to Fu Yu’s FY16 annual report, as at 24 Mar 2017, the company’s three co-founders – Mr Tam Wai (66 years old), Mr Ching Heng Yang (66 years old) and Mr Ho Nee Kit (63 years old) – owned a combined 37.53% direct stake in Fu Yu.


Risk - US dollar depreciation 

  • We understand that 80% of the company’s revenue is denominated in US dollars, while only 50% of costs are in US dollars. 
  • As Fu Yu does not adopt a hedging policy, any weakening of the US dollar vs. the local operating currencies (Singapore dollar, ringgit and renminbi) will have an adverse impact on both the gross margin level and net profitability.


Balance sheet 

  • As at end-Sep 2017, Fu Yu was in a net cash position with zero debt. Net cash per share as at end-Sep 2017 was 12.6 Scts or 63% of its share price of 20.0 Scts on 5 Jan 2018.
  • 3Q17/9M17 performance Revenue grew 4.5% yoy to S$50.2m in 3Q17 and gross profit margin was 16.8%.
  • Net profit fell 55.9% yoy to S$0.8m. For 9M17, revenue fell 5.2% yoy to S$142.3m while gross profit margin was 16.3%. Net profit for Fu Yu for 9M17 fell 58.3% yoy to S$2.1m.


Historical valuations 

  • Fu Yu trades at a historical FY16 P/E of 14.3x, above the industry average of 14.1x. In terms of FY16 P/BV and ROE, the company’s P/BV ratio of 0.87x is below the industry average of 1.00x, while its ROE of 6.1% is below the industry average of 7.7%. 
  • All three listed plastic injection moulding companies in Singapore were in a net cash position as at end-Dec 2016. Fu Yu had the highest historical FY16 dividend yield of 7.5% among its peers, above the industry average of 4.3%.


NOT RATED
Target Price: N/A


William TNG CFA CIMB Research | http://research.itradecimb.com/ 2018-01-09
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998.000 Same 99998.000


* This Eyes On the Ground report represents a preliminary assessment of the subject company, and does not represent initiation into CIMB's coverage universe. It does not carry investment ratings and CIMB does not commit to regular updates on an ongoing basis.



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