FU YU CORPORATION LTD (SGX:F13)
Fu Yu Corp - Stable Dividend Dispenser; Keep BUY
- As of 9M20, Fu Yu has S$97.8m in net cash with zero borrowings despite the pandemic affecting production. With a further streamlining of operations in China and despite the revenue drop with the closing of its Chongqing factory, we expect further cost savings ahead. 9M20 GPM also expanded to 23.5% (9M19: 18%).
- We maintain our recommendation, as we expect Fu Yu to tide through this pandemic with attractive yields.
Margins continue to improve despite COVID-19.
- Fu Yu (SGX:F13)'s 9M20 PATMI surged 36.7% y-o-y despite a 23.4% drop in revenue. This was mainly due to a higher GPM that can be attributed mainly to the change in revenue mix, a reduction in headcount, and the group’s ongoing initiatives to sustain costs while raising operational efficiencies. GPM continue to improve to 23.5% from 18% a year ago.
- While the challenging business conditions are expected to continue, management continues to evaluate avenues to further right size and optimise its China manufacturing operations. This is to ensure that Fu Yu is better positioned for long-term business sustainability. An example of this: Fu Yu closed its Chongqing factory, which will likely provide further cost savings operationally, in our view.
Strong net cash of S$97.8m and an attractive 6.3% dividend yield.
- As of 1H20, Fu Yu had a strong net cash position of S$97.8m and zero borrowings. It also maintained its interim dividend payout. We expect a 1.7 cents payout for FY20, which results in an attractive 6.3% dividend yield.
- Fu Yu’s management prudent approach has led the group to a net cash balance sheet representing close to 53% of its market cap. Coupled with its rich cash flow generation, we believe Fu Yu will be able to weather out this storm and likely come out stronger than its competitors.
Maintained as one of our Top Picks – stable and resilient.
- With further new projects in the medical, consumer and automotive fronts, we expect a positive growth momentum for 4Q20. Despite a blip in FY20 caused by the COVID-19 situation, we believe Fu Yu – with a strong net cash balance sheet – will able to weather the storm.
- 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.
- We also think that it can at the same time provide its investors with attractive dividends despite an estimated temporary drop in profits for FY20. As a result, we maintain our BUY call.
- Fu Yu is also one of RHB's top Singapore stock picks for 2021: See Singapore Market Strategy - RHB Invest 2020-12-14: Key Themes In 2021 & Stock Picks.
- Key risks to our call: Economic slowdown, the US-China trade war ting spread of new COVID-19 cases.
Jarick Seet
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-12-28
SGX Stock
Analyst Report
0.300
SAME
0.300
