FU YU CORPORATION LTD (SGX:F13)
Fu Yu Corp - Safe Haven In Tough Times; Maintain BUY
- 2Q20 is expected to be weaker y-o-y due to the MCO in Malaysia, coupled with tightened measures in Singapore, and lower demand from its customers caused by travel restrictions and disruptions in the supply chain. However, we expect Fu Yu (SGX:F13) to remain profitable and its strong net cash position to tide the company through tough times.
- Maintain BUY and DCF-backed Target Price of SGD0.28, 22% upside and 7% yield.
Factories globally back in operation.
- Fu Yu's factories in China were disrupted during the Lunar New Year period due to the lockdown in China. With the Movement Control Order (MCO) in Malaysia, Fu Yu also closed its Malaysia factories from 18-31 Mar. 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, all of Fu Yu’s factories globally are likely to be fully operational.
Net cash position to weather the storm.
- With management learning from past mistakes during the manufacturing crisis, its prudent approach has led 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 Fu Yu will be able to weather the storm and likely come out stronger than its competitors.
High yield of 7% for FY20F.
- With a sound balance sheet (net cash of SGD94.4m), and positive operating cash flow, we expect Fu Yu to continue rewarding shareholders with attractive dividends. See Fu Yu Dividend History.
- We expect dividend to be maintained at 1.6 SG cents (for FY20F) – as it has done in the past. Despite not being as profitable then, dividend payout ratio was still 100% or more than its profits.
Maintain one of our Top Picks – stable and resilient.
- With further new projects in the medical, consumer products and automotive fronts, we expect the positive growth momentum to continue from FY21F. In spite of the blip in FY20F caused by COVID-19, we believe Fu Yu, with its strong net cash position will able to weather the storm and at the same time, still be able to reward its investors with attractive dividends despite a temporary drop in profits in FY20F. As a result, we maintain BUY with an unchanged 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, COVID-19 spread worsening.
- Fu Yu is also one of the RHB's Top Singapore Small Cap Companies - 20 Jewels 2020 Edition.
Jarick Seet
RHB Securities Research
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Lee Cai Ling
RHB Invest
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https://www.rhbinvest.com.sg/
2020-06-16
SGX Stock
Analyst Report
0.280
SAME
0.280
