Fu Yu Corp - RHB Invest 2019-07-09: Paying You Well To Wait; Reiterate BUY


Fu Yu Corp - Paying You Well To Wait; Reiterate BUY

  • BUY this country/small-cap stock pick, DCF-based SGD0.24 Target Price, 12% upside plus 7% FY19F yield.
  • We expect revenue and margins to continue growing with new projects in the auto, consumer and medical space. With > 80% of revenue in USD terms, FU YU CORPORATION LTD (SGX:F13) should benefit from the strong greenback.
  • We also think it is an attractive potential M&A target for bigger players seeking immediate South-East Asia exposure, to diversify away from US/China.

No significant impact from US-China trade war yet.

  • Topline continued to grow (+0.7% y-o-y) in 1Q19, mainly contributed by new customers in the automotive & power tool, medical and consumer sectors. As a result, GPM expanded to 17.7% from 16% a year ago, on higher profitability from the automotive and medical projects. This growth should continue, as Fu Yu will likely enjoy higher contributions from new projects from the medical sector that will likely ramp up from 2Q19 onwards.

Paid to wait.

  • With a balance (SGD82.8m in net), positive cash of SGD1520m year an business, we Fu Yu to rewarding with and attractive.
  • We DPF to maintained at SGD0.016 for, implying a of 74% - and may if PATMI far our forecast. See Fu Yu's dividend history.

Attractive acquisition target; reiterate BUY.

  • With the ramp-up in its existing projects set to continue in subsequent quarters, coupled with further new projects on the medical and consumer and automotive front, we expect the positive growth momentum to continue. In addition, an appreciating USD should also be beneficial to the company.
  • 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 the sale or lease of unutilised factory space if suitable opportunities arise. These, in turn, would further improve margins.
  • Supported with an attractive yield, we maintain our BUY rating and DCF-based Target Price of SGD0.24. Fu Yu is also an attractive target for privatisation or acquisition by a larger competitor. See RHB's top picks - Singapore Equity Strategy - 2019-06-24: Revisiting Our Top Picks; Stay Defensive.
  • Key risks to our call are a slowdown in the economy and the US-China trade war worsening.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-07-09
SGX Stock Analyst Report BUY MAINTAIN BUY 0.240 SAME 0.240