Fu Yu Corp - CGS-CIMB Research 2021-03-05: A New Chapter Begins


Fu Yu Corp - A New Chapter Begins

  • Fu Yu held its FY20 results briefing this morning.
  • We think there will be no changes to the company’s dividend policy (projected at 5.5% for FY21-23F) for the moment.
  • Fu Yu will target the medical, lifestyle (filtration products), solar and electric vehicle-related segments to grow its revenue again.

Shareholder renewal

  • On 13 Jan 2021, Pilgrim Partners Asia (Pte) Ltd announced that it has purchased a 29.8% stake in Fu Yu (SGX:F13) at S$0.26 per share from the major shareholders.
  • According to Fu Yu's announcement, Pilgrim was mandated by a Singaporean private investor to seek investment opportunities in the precision engineering industry. The decision to invest in Fu Yu was based on the group’s strong track record, extensive scale of operations in Asia, established customer network, sound financial fundamentals and attractive long-term potential.

Working to grow sales again

  • In FY20, Fu Yu’s revenue fell 21.0% y-o-y due to the COVID-19 pandemic as well as the closure of its Chongqing plant. On a segmental basis, Fu Yu made strong progress in its medical business, which accounted for 24% of FY20 revenue (vs. 18% in FY19).
  • Management sees revenue opportunities in lifestyle-related (water and air filtration products), medical (devices and disposables) and renewable energy-related fields (solar power, electric vehicle components and lenses used in sensors for cars).

Enough capacity to support growth

  • The redevelopment project for its Singapore plants has resumed, with the new office cum production and warehouse facility scheduled for completion by end-2021F. When completed, the new facility area will be three times larger than the previous one.
  • As revenue contribution from Singapore has been growing, the new facility will help improve profitability with its more optimised layout. In China, the remaining optimisation will be the Zhuhai plant, which is leased.
  • In its FY19 annual report, Fu Yu also revealed the desktop valuation of its owned factories. Based on the revalued figures, the BV/share as at end- Dec 2019 would have been S$0.268 (vs. the reported BV/share at historical cost of S$0.217).

Reiterate ADD on Fu Yu

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-05
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