FU YU CORPORATION LTD (SGX:F13)
Fu Yu Corp - Solid Net Cash Manufacturer; Maintain BUY
- Maintain BUY with a new DCF-backed Target Price of SGD0.28 from SGD0.32, 27% upside plus c.7% yield from its net cash position and attractive yield.
- Fu Yu (SGX:F13) faced minor disruption with the temporary closure of its Malaysia factories in March due to the MCO, and lower operating capacity from logistics issues.
- Coupled with the disruption in China, we lower FY20F PATMI by 14%. However, factories globally have resumed operations, and Singapore production remains intact despite the recent circuit breaker.
Factories globally back in operation.
- Fu Yu's factories in China were disrupted during the Lunar New Year period due to China’s lockdown. With the Movement Control Order (MCO) in Malaysia, the group also closed its Malaysia factories on 18-31 Mar 2020. However, it has since managed to obtain approvals to resume operations in China and Malaysia, and with the Singapore factories unaffected by the circuit breaker recently implemented, all factories globally are likely to be operational.
Net cash balance sheet to weather the storm.
- With management learning from past mistakes during the manufacturing crisis, its prudent approach has provided Fu Yu with a net cash balance sheet representing close to 60% of its market cap.
- Coupled with its rich cash flow generation, we believe that the company will be able to weather the storm and likely to come out stronger than its competitors.
High yield of 7.4% for FY20F.
- With a sound balance sheet (net cash of SGD88.5m), positive operating cash flow of SGD15-20m pa, and improving business, we expect Fu Yu to continue rewarding shareholders with attractive dividends. We expect DPU to be maintained at 1.6 SG cents for FY20F, at the very least, and potentially increase if PATMI rises far above our forecast.
Maintain one of our Top Picks – stable and resilient.
- We expect Fu Yu’s positive growth momentum to continue with further new projects in the medical and consumer as well as automotive fronts. The closure of its Shanghai factory and new redevelopment of its Singapore factory should see margins improving.
- With a strong net cash balance sheet able to weather the storm and still be able to reward investors with attractive dividends, we maintain BUY and a lower DCF-based Target Price of SGD0.28. Fu Yu is also an attractive target for privatisation or acquisition.
- See Fu Yu Share Price; Fu Yu Target Price; Fu Yu Analyst Reports; Fu Yu Dividend History; Fu Yu Announcements; Fu Yu Latest News.
- Key risks to our call: economic slowdown, trade war worsening, and COVID-19 spread worsening.
- See also report: Singapore Technology Sector - RHB Invest 2020-04-15: Disrupted By COVID-19 Pandemic; OVERWEIGHT.
Jarick Seet
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-04-13
SGX Stock
Analyst Report
0.28
DOWN
0.320
