Fu Yu Corp - RHB Invest 2019-08-14: Steady 2Q19; Interim DPS Up 16.7% Y-o-y


Fu Yu Corp - Steady 2Q19; Interim DPS Up 16.7% Y-o-y

  • We have a firm BUY on this small/mid-cap manufacturing Top Pick, Target Price of SGD0.24 implies 12% upside with 8% FY19F yield.
  • FU YU CORPORATION LTD (SGX:F13) had an steady 1H19, as PATMI grew 10.7% y-o-y. We expect continued revenue and margin expansion on new projects into the auto, consumer and medical space.
  • As over 80% of revenue is in USD, it should also benefit from the strengthening of the greenback.

GPM widened in 1H19.

  • Topline dipped by 0.4% y-o-y. However, GPM improved to 18.5% from 16.5% 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.

Increase in interim dividends.

  • With a sound balance sheet (net cash of SGD80.1m), 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. See Fu Yu's dividend history.
  • We initially expected DPS to at least be maintained at 0.016 SG cents for FY19, but management increased interim DPS by 16.7% to 0.0035 SG cents, from 0.003 cents. As a result, we raise FY9F DPS to 0.017 cents, representing a yield of 8%.

With the ramp-up in existing projects expected to continue

  • With the ramp-up in existing projects expected to continue in subsequent quarters, coupled with further new projects in the medical and consumer and automotive fronts, we expect the positive growth momentum to continue.
  • In addition, a rising USD should also benefit the company. Management is still 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 to our call: economic slowdown, trade war worsening.
  • RHB is one of two brokers covering this counter. See Fu Yu's analyst reports.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-08-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.240 SAME 0.240