Fu Yu Corp - CGS-CIMB Research 2021-02-23: Right Sized For Growth


Fu Yu Corp - Right Sized For Growth

  • Fu Yu (SGX:F13)'s FY20 revenue was in line with our full-year expectations while net profit came in 9% above our expectations, driven by a lower cost structure.
  • Net cash (no borrowings) of S$106.6m at end Dec-2020. Final dividend of S$0.0125 per share (FY20 dividend of S$0.016 per share, unchanged from FY19).
  • Reiterate ADD with a higher target price of S$0.355 as earnings growth resumes, supported by a lower cost structure.

Leaner cost structure

  • Fu Yu's FY20 revenue was in line with our forecast while net profit was 9% above our full-year expectations. FY20 revenue fell 21.0% y-o-y due to disruptions and economic uncertainty caused by the COVID-19 pandemic. Half-on-half, Fu Yu’s revenue recovered to S$81.9m in 2H20, from S$71.6m in 1H20.
  • While Fu Yu's revenue in China and Malaysia fell y-o-y in FY20, Singapore’s revenue grew 3.8% y-o-y driven by higher sales of consumer and medical products.
  • The better-than-expected net profit performance was due to a leaner cost structure achieved with the restructuring of its China operations. Selling and administrative expenses fell 17.4% y-o-y in FY20.
  • Other notable items in Fu Yu's FY20 results were
    1. foreign exchange loss of S$2.5m,
    2. gain on disposable of property, plant and equipment of S$1.7m,
    3. government grants of S$2.3m, and
    4. lower tax rate of 13.7% versus 21.7% in FY19.
  • Fu Yu's net cash as at end-Dec 2020 was S$106.6m (no bank borrowings) and a final dividend of S$0.0125 was declared (full-year dividend of S$0.016). See Fu Yu Dividend History.

Revenue growth will be key

  • Despite the revenue decline in FY20, return on equity improved with better margin achieved via a lower cost structure. With a challenging FY20 behind, we think moderate revenue growth could resume as the COVID-19 pandemic eases.
  • We also assume that Fu Yu will continue to optimise its cost structure and product mix.

Reiterate ADD with higher S$0.355 target price

  • We raise our Fu Yu's FY21-22F net profit forecast by 13.5-13.8% as we lower our operating expense and tax rate assumptions.
  • Our Gordon Growth derived P/BV multiple rises to 1.49x (previously 1.30x) as ROEs improve driven by lower operating cost and tax leakage. At 1.49x FY21F BVPS of S$0.238, our target price rises to S$0.355.
  • Projected FY21-23F dividend yield of Fu Yu is 5.7%. We estimate Fu Yu’s net cash per share as at end-FY21F to be S$0.139 or 49.5% of Fu Yu's share price of S$0.28 on 23 Feb 2021.
  • See Fu Yu Share PriceFu Yu Target PriceFu Yu Analyst ReportsFu Yu Dividend HistoryFu Yu AnnouncementsFu Yu Latest News
  • Downside risks are unfavourable foreign exchange movements, increased competition, unexpected worsening of the COVID-19 pandemic.
  • Higher-than–expected earnings growth is a re-rating catalyst

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-23
SGX Stock Analyst Report ADD MAINTAIN ADD 0.355 UP 0.288