Fu Yu Corp - RHB Invest 2019-05-10: Stellar Numbers Point To Bright Outlook; BUY


Fu Yu Corp - Stellar Numbers Point To Bright Outlook; BUY

  • We have a firm BUY on this small/mid-cap manufacturing Top Pick, Target Price of SGD0.24 implies 17% upside with 8% FY19F yield. (See also Top Singapore Small Cap Companies - RHB's 20 Jewels 2019 Edition.)
  • FU YU CORPORATION LTD (SGX:F13) had an exceptional 1Q19, as revenue/PATMI grew 0.7%/189% y-o-y. We expect continued revenue and margin expansion on new projects into the auto, consumer and medical space.
  • As over 80% of its revenue is in USD, Fu Yu should also benefit from the strengthening of the greenback.

Superb 1Q19.

  • Topline continued to grow, increasing by 0.7% y-o-y. This was contributed mainly by new customers in the automotive & power tool, medical and consumer sectors.
  • Gross profit margin improved to 17.7% from 16% a year ago, also on higher margins from automotive and medical projects – this uptrend will likely continue, as Fu Yu is set to enjoy higher contributions from new projects from the medical sector that will likely ramp up from 2Q19 onwards.

Dividends likely sustainable.

  • With a sound balance sheet (net cash of SGD82.8m), positive operating cash flow of SGD15-20m a year and an improving business, we expect Fu Yu to continue rewarding shareholders with higher and more attractive dividends.
  • We expect DPS to at least be maintained at SGD0.016 for FY19, indicating a yield of 7.8%.
  • Dividends could also increase if the PATMI rises far above our forecast.

With the ramp-up in its existing projects to continue

  • With the ramp-up in its existing projects to continue in the subsequent quarters, coupled with further new projects in the medical and consumer and automotive front, we expect such positive growth momentum to continue. In addition, a rising USD should also benefit Fu Yu.
  • Management is still actively seeking ways to further optimise the cost structure of its operations in the region, especially in China – such as right-sizing exercises and selling/leasing unutilised factory space if suitable opportunities arise, which will further improve margins.
  • Supported with an attractive yield, we maintain BUY with an unchanged DCF-backed Target Price of SGD0.24.
  • Fu Yu is also an attractive target for privatisation or acquisition.

Key risks

  • Key risks to our call: economic slowdown, trade war worsening.
  • RHB is one of two brokers covering this counter.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-05-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.240 SAME 0.240