Fu Yu Corp - RHB Invest 2018-08-15: The Time Is Now

Fu Yu Corp - RHB Securities Research 2018-08-15: The Time Is Now FU YU CORPORATION LTD SGX:F13

Fu Yu Corp - The Time Is Now

  • We had been waiting for more positive signs before reaffirming Fu Yu’s growth, and the firm delivered in 2Q18.
  • Fu Yu Corp’s 2Q18 topline rose 7.4% y-o-y while PATMI surged 553% y-o-y. This was accompanied by a gross margin improvement of 16.9% from 15.5%, driven by higher-margin new projects in the automotive, consumer and medical segments.
  • The privatisation of its Malaysian subsidiary also boosted PATMI, backed by an attractive 9.2% yield.

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  • Upgrade to BUY from Neutral with a higher DCF-backed SGD0.22 Target Price from SGD0.20, 29% upside, as we raise FY18F PATMI 49.2%.

2Q18 topline rose 7.4% y-o-y

  • Fu Yu Corp’s 2Q18 topline rose 7.4% y-o-y to SGD50.8m, while PATMI surged 553% y-o-y to SGD4m.
  • Gross margins also improved to 16.9% from 15.5%, driven by higher-margin new projects in the automotive, consumer and medical segments. We expect the ramp-up of these projects to accelerate in subsequent quarters, especially in 3Q18. As a result, we do expect better margins for the remaining quarters of 2018.

Fu Yu has a strong balance sheet with a net cash of SGD73.9m and zero debt.

  • This is despite profits declining in the past few years and the firm paying out > 100% of profits as shareholder dividends, coupled with the recent privatisation of LCTH Corp, which took > SGD20m. The latter’s privatisation exercise also contributed to Fu Yu’s PATMI boost due to an improvement in its Malaysian operations.
  • To reward shareholders on the company’s fine performance, management declared an increased interim dividend of SGD0.003 from SGD0.0025.
  • All-in-all, we expect Fu Yu to increase its dividends for FY18 to SGD0.016 from SGD0.015, representing an attractive dividend yield of 9.2%.

Growth signs affirmed, upgrade to BUY from Neutral.

  • With higher-margin new projects being secured in the automotive, consumer and medical segments – coupled with the ramp-ups expected in 3Q18 and 4Q18 – we expect topline and profitability to continue to trend upwards in subsequent quarters. This should be accompanied by margin improvements.
  • In addition, we understand that Fu Yu is still trying to secure new customers and has not yet been impacted by the trade war between China and the US – this is despite having factories in China.
  • Accompanied by an attractive 9.2% dividend yield, we lift our FY18F PATMI estimates by 49.2% and upgrade our call with a higher DCF-backed Target Price of SGD0.22 from SGD0.20, 29% upside.
  • Key risks to our call are a slowdown in the economy and the US-China trade war worsening.
  • RHB is the only broker covering this counter.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-08-15
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