Fu Yu Corp - RHB Invest 2018-12-14: Top Pick For Small-Mid Cap Manufacturing


Fu Yu Corp - Top Pick For Small-Mid Cap Manufacturing

  • Maintain BUY with DCF-backed Target Price of SGD0.23, accompanied by an attractive FY19F 8.3% yield.
  • Fuyu reported an exceptional 3Q18, with continued topline growth of 4.4% and PATMI surge of 543% y-o-y.
  • Going forward, we expect continued revenue and margin expansion due to new projects into the automotive, consumer and medical spaces. With more than 80% of its revenues in USD, it should also benefit from the stronger USD. As a result, Fu Yu remains our Top Pick for the small-mid cap manufacturing sector.

Exceptional performance YTD.

  • As of 9M18, topline has grown steadily at 5.2% y-o-y, contributed mainly by new customers in the automotive, medical and consumer spaces. Gross margin improved to 17.8% from 16.3% a year earlier, following higher margins from the automotive and medical projects, which look likely to continue.
  • Fuyu should enjoy higher contribution from its auto projects as they ramp up in subsequent quarters. 9M18 PATMI also surged 433% to SGD8.95m.

Increased payout and attractive 8.3% FY19F yield.

  • With a sound balance sheet consisting of no debt and net cash of SGD77.3m, positive operating cashflows of SGD15-20m a year and an improving business with higher margins, we expect Fuyu to continue to reward shareholders with higher and more attractive dividends. 
  • Fuyu has paid SGD0.014 annually in the past two years, despite a slowdown in business. It also increased interim dividends for 2Q18 and the current quarter to SGD0.003 from SGD0.002 per quarter.
  • All in all, we expect dividends to increase to SGD0.016, which we think is highly feasible and will still represent an attractive yield of 8.2%.

Continues to be our Top Pick in the small-mid cap manufacturing space; Maintain BUY.

  • With the ramp-up in its automotive projects to continue in the subsequent quarters, coupled with new projects on the medical and consumer front, we expect such positive growth momentum to continue. In addition, a rising USD would also be beneficial for Fuyu.
  • Management is still actively seeking ways to further optimise the cost structure of its operations in the region, especially in China, such as rightsizing exercises and the sale or lease of unutilised factory space if suitable opportunities arise – which will further improve margins.
  • Supported by an attractive yield, we maintain BUY with DCF Target Price of SGD0.23. Fuyu remains our Top Pick in the small-mid cap manufacturing space.
  • Key risks to our call include a slowdown in the economy and a worsening trade war.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-12-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.230 SAME 0.230

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