Fu Yu Corp - RHB Invest 2019-02-28: Strong FY18; Keep BUY


Fu Yu Corp - Strong FY18; Keep BUY

  • Keep BUY with new DCF-backed Target Price of SGD0.24 from SGD0.23, 12% upside plus 7% yield, as we roll over to FY19.
  • FU YU CORPORATION LTD (SGX:F13) remains our Top Pick in the small-mid cap manufacturing sector. It reported strong FY18 results, with continued topline growth of 1.4% and PATMI surging 165% y-o-y to SGD11.9m.
  • We expect continued revenue and margin expansion due to new projects into the auto, consumer and medical space. With > 80% of its revenues in USD, it would also benefit from the strong USD.
  • FY19F DPS is likely to maintain at SGD0.016.

Strong FY18.

  • Fu Yu's FY18 topline reversed its decline and increased 1.4% y-o-y, contributed mainly by new customers in the automotive, medical and consumer space.
  • Gross margin improved to 17.8% from 17.1% a year ago also due to higher margins from the automotive and medical projects, which would likely continue, as it should enjoy higher contributions from new projects from the medical sector that is likely to ramp up from 2Q19.
  • Fu Yu also declared total dividends of SGD0.016 for FY18, compared to SGD0.015 a year ago, representing a yield of 7.4%.

Dividends likely sustainable.

  • With net cash of SGD80.3m, positive operating cash flow of SGD15-20m a year, and improving business, we expect Fu Yu to continue to reward shareholders with higher and more attractive dividends.
  • We expect the dividends to at least maintain at SGD0.016 for FY19F, and potentially increase if PATMI exceeds our forecast.

Still our Top pick in the small-mid cap manufacturing space.

  • With the ramp up in Fu Yu's existing projects to continue in the subsequent quarters, coupled with further new projects in the medical and consumer and automotive front, we expect the positive growth momentum to continue. In addition, a rising USD would also be beneficial.
  • 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. This should further improve margins.
  • Supported with an attractive yield, maintain BUY on Fu Yu with a higher DCF-backed Target Price of SGD0.24.
  • Key risks to our call include a slowdown in the economy and trade war worsening.
  • RHB is one of two brokers covering Fu Yu.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-02-28
SGX Stock Analyst Report BUY MAINTAIN BUY 0.24 UP 0.230