Fu Yu Corp - RHB Invest 2020-08-17: Cash Cow Tiding Through; Maintain BUY


Fu Yu Corp - Cash Cow Tiding Through; Maintain BUY

  • Keep BUY with new DCF-backed Target Price of SGD0.30 from SGD0.28, 25% upside and c.7% yield.
  • As at 1H20, Fu Yu’s net cash was SGD101.6m with zero borrowings despite COVID-19 affecting production. With further streamlining of operations in China despite the fall in revenue from the closing of its Chongqing factory, we expect further cost savings.
  • We lift FY20F by 10%, which raises our Target Price. We keep our call as we expect the company to tide through this pandemic while providing attractive yield.

Fu Yu's 1H20 PATMI surges 46.3% y-o-y

  • Fu Yu (SGX:F13)'s 1H20 PATMI surges 46.3% y-o-y despite a 26% drop in revenue mainly due to a rise in other income and FX gains as a majority of Fu Yu’s revenue and cash hoard is held in USD. GPM improved to 21.4% from 18.5% a year ago.
  • With challenging business conditions expected ahead, management will continue to evaluate avenues to further rightsize and optimise its manufacturing operations in China to ensure it is better positioned for long-term business sustainability. It has since closed its Chongqing factory, which would likely provide further cost savings operationally.

Strong net cash of SGD101.6m and a 6.7% attractive yield.

  • As of 1H20, Fu Yu had a strong net cash position of SGD101.6m and zero borrowings. The company has also maintained its interim dividend payout. We expect FY20F DPS of 1.7 cents, which will result in an attractive yield of 6.7%.
  • With management learning from past mistakes during the manufacturing crisis, its prudent approach has led it with a net cash balance sheet representing close to 60% of its market cap. Coupled with a rich cash flow generation, we believe that Fu Yu will be able to weather this storm and likely come out stronger than its competitors.

Remains one of our sector’s Top Picks – stable and resilient.

  • With further new projects in the medical, consumer and automotive fronts, we expect positive growth momentum for 2H20F. Despite a blip in FY20F caused by COVID-19, we believe Fu Yu, with a strong net cash balance sheet, will be able to weather the storm and, at the same time, still be able to reward its investors with an attractive dividend despite a temporary drop in profits for FY20F. As a result, we maintain BUY with a higher DCF-based Target Price of SGD0.30.
  • 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 c worsening.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2020-08-17
SGX Stock Analyst Report BUY MAINTAIN BUY 0.30 UP 0.280