Fu Yu Corp - CGS-CIMB Research 2020-09-10: Looking Forward To Growth Again


Fu Yu Corp - Looking Forward To Growth Again

  • Fu Yu's 1H20 revenue fell 26.0% y-o-y due to production disruptions and weaker demand arising from the COVID-19 pandemic. As at end-Jun 2020, net cash formed 56.2% of Fu Yu’s market cap.
  • With the rightsizing of its loss-making China operations nearly completed, we expect its net profit to grow again.
  • Reiterate HOLD on Fu Yu with a higher target price of S$0.24.

Fu Yu's 1H20 results review

  • Fu Yu Corporation (SGX:F13) reported its 1H20 results on 14 Aug 2020. See Fu Yu Announcements. 1H20 revenue fell 26.0% y-o-y to S$71.6m due to the impact of business disruptions and dampened demand conditions as the COVID-19 pandemic took its toll on global economies.
  • Fu Yu's net profit grew 46.3% y-o-y to S$7.4m aided by a foreign exchange gain of S$2.1m and COVID-19 related government grants of S$1.3m. Excluding these non-operational items, 1H20 net profit would have declined 28.5% y-o-y.
  • A better product mix and cost control saw gross profit margin improve to 21.4% versus 18.5% in 1H19.
  • Interim DPS was maintained at 0.35 Scts. See Fu Yu Dividend History.
  • As at end-Jun 2020, Fu Yu remained in a net cash position of S$101.6m with zero borrowings.

Rightsizing largely completed

  • Fu Yu has announced that the group intends to close its factory located in Chongqing by end-Dec 2020 as part of the group’s ongoing strategy to streamline and optimise its manufacturing operations across Asia. Post the closure of its factory in Chongqing, Fu Yu will operate from two owned factories (one in Dongguan and the other in Suzhou) and one leased factory in Zhuhai.
  • Fu Yu also guided that the Chongqing factory contributed less than 10% and 1% of the group’s revenue and profit before tax respectively in FY19. Fu Yu recognised S$1.0m expenses in relation to the closure of the Chongqing factory in its 1H20 results.

Reiterate HOLD

  • Our forecasts remain unchanged for now but target price for Fu Yu is raised to S$0.24 based on Gordon Growth derived P/BV multiple of 1.10x (previously 0.95x). See Figure2 in PDF report attached below for target price derivation. Projected FY20F dividend yield is 6.7%.
  • We estimate Fu Yu’s net cash position as at end-FY20F to be S$84.9m (zero debt balance sheet). As at 30 Jun, net cash was 56.2% of Fu Yu’s market cap.
  • See Fu Yu Share Price; Fu Yu Target Price; Fu Yu Analyst Reports; Fu Yu Dividend History; Fu Yu Announcements; Fu Yu Latest News.
  • A potential upside risk is faster-than-expected recovery from COVID-19 disruptions.
  • Downside risks are unfavourable foreign exchange movements, increased competition and worsening COVID-19 outbreak.
  • Higher-than–expected earnings growth could lead us to review our recommendation.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-09-10
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.24 UP 0.210