Fu Yu Corp - UOB Kay Hian 2019-05-10: 1Q19 A Healthy Start; Results In Line


Fu Yu Corp - 1Q19 A Healthy Start; Results In Line

  • FU YU CORPORATION LTD (SGX:F13)'s 1Q19 core PATMI was in line with our forecast, meeting 18% of our full-year estimate in a seasonally weaker quarter and grew 14% y-o-y due to robust growth in Singapore and Malaysia. Gross margin continued to increase, mainly due to a shift in sales mix with increased contributions from higher margin markets.
  • Fu Yu aims to continue driving sustainable growth.
  • Maintain BUY and target price of S$0.285.


1Q19 results in line; core PATMI grew 14% yoy

  • FU YU CORPORATION LTD (SGX:F13)’s growth was driven mainly by increased sales in Singapore (+9.2% y-o-y) and Malaysia (+31.0% y-o-y).
  • Growth in Singapore was driven mainly by products in the automotive, medical, and consumer segments while Malaysia recorded growth from the consumer, medical segments and power tools. However, sales from China operations fell 12.2% y-o-y, mainly due to lower sales from the printing and networking segments.
  • The continued growth in gross profit was attributed to a shift in sales mix and FUYU’s continual efforts to streamline costs and raise operational efficiencies.

Robust cash flow and balance sheet, 2019F dividend yield remains attractive at 7.6%.

  • Operating cash flow before working capital after adjusting for the new SFRS 16 for 2018 grew 97% y-o-y due to strong core PATMI growth and positive forex impact. In addition, balance sheet remained robust, with net cash per share standing at S$0.11 or 52% of total market cap.
  • Total dividend of 1.7 S cents translates into a good dividend yield of 8.3%.

Continues to gain traction with existing and new customers.

  • Fu Yu continued to make good progress with customers in the consumer, medical, and automotive & power tools segments. Fu Yu has benefited from higher demand, and contributions from additional projects secured with existing customers as well as new customers in these segments. The increased sales of consumer, medical and automotive & power tools products in 1Q19 helped to offset the softer demand from customers in the printing & imaging and networking & communications segments.
  • Fu Yu maintained its strategy in having a broad diversity in its product portfolio to deliver stable and sustainable growth over the long term.


BUY for high and sustainable dividend yield, cheap EV/EBITDA

  • Fu Yu offers a high and sustainable dividend yield of 7.8% for 2018 and we expect it to increase to 8.3% in 2019, on the back of an improving net profit, FCF and strong net cash position of S$85m (S$0.11 per share).
  • In 2018, Fu Yu raised its interim dividend for the first time in three years, and we expect further increases.

Takeover target for its valuation, diversification, capacity and salary savings.

  • Fu Yu could be a takeover target given:
    1. its attractive valuation of 3.0x 2019F EV/EBITDA. Note that its peers have been privatised at an EV/EBITDA range of 5.0-25.7x in the past,
    2. Fu Yu’s geographically diversified plants and customers are highly sought after,
    3. Fu Yu’s low utilisation rate of only around 50% could appeal to potential acquirers who are in a hurry to increase production capacity, and
    4. low-hanging fruit from the savings of three co-founders’ remuneration, estimated to be at around S$2.3m-3.0m p.a. or 21-28% of 2018 net profit.


  • We have kept our existing earnings forecast unchanged.


  • Maintain BUY and target price. Our target price of S$0.285 is based on 5.7x 2019F EV/EBITDA, pegged to peers’ average. It implies a 2019F dividend yield of 6.0% and ex-cash PE of 11.3x.


  • Higher-than-expected net profit and dividend.
  • Potential takeover offer.
  • Potential corporate actions to unlock values such as disposal of properties.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-05-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.285 SAME 0.285