Fu Yu Corp - RHB Invest 2021-05-05: Manufacturer With Sturdy Cash Pile


Fu Yu Corp - Manufacturer With Sturdy Cash Pile

  • High dividend yield of 5% for FY21F;
  • Strong balance sheet, with S$106.6m in net cash;
  • Recovery in topline, with stronger margins.

Fu Yu - Company Profile

  • Fu Yu (SGX:F13) provides vertically-integrated services in the manufacture of precision plastic components, and the fabrication of precision moulds and dies. Since its inception in 1978, Fu Yu has grown to become one of Asia’s largest manufacturers of high-precision plastic parts and moulds. Today, Fu Yu has a strong presence in the region, with manufacturing facilities in Singapore, Malaysia, and China.
  • Leveraging on over 40 years of history, Fu Yu has built a broad and diversified customer base of blue chip companies in the printing & imaging, networking & communications, consumer, medical, and automotive sectors.

Fu Yu - Investment Highlights

Maintain BUY, with a DCF-based target price of S$0.37.

  • Fu Yu's FY20 PATMI rose 33.3% y-o-y to S$16.9m, mainly due to higher-margin products despite a slowdown in sales. This could be mainly due to the group’s efforts to enhance its sales mix, reduce its headcount, and flesh out ongoing initiatives to improve cost management and operational efficiencies.
  • With S$106.6m in net cash and a FY21F 5% yield, on top of good business growth prospects and a privatisation angle, we maintain a BUY call on Fu Yu.

New leadership, but management remains unchanged – for now.

  • Choo Boon Tiong Vice Chairman and Executive Director Seow Jun Hao have valuable corporate experience and diverse knowledge in various business, and will be undergoing an assimilation process to get a better grasp of Fu Yu’s full range of operations. They will continue to work closely with management and the rest of the board on long-term strategic plans.

Business as usual.

  • The board of directors has reaffirmed that Fu Yu’s core business in precision manufacturing will continue, and the company will continue to look forward to new perspectives and opportunities that could enhance profitability and create value for shareholders over the long term.
  • Current CEO and executive director Hew Lien Lee will still continue to spearhead and oversee the group’s operations together with his core management team.

Strong net cash of S$106.6m, attractive 5% yield.

  • As of FY20, Fu Yu has a strong net cash position of S$106.6m and zero borrowings. It has also maintained its interim dividend pay-out ratio. We expect it to pay 1.7 cents in DPS for FY21 (outpacing that of FY20), which should result in an attractive 5% yield.
  • With management learning from past mistakes during the manufacturing crisis, Fu Yu’s prudent approach has led the group to a net cash balance sheet which represents close to 51% of its market cap. Coupled with its rich cash flow generation, we believe the group should be able to weather this storm, and emerge stronger than its competitors.

Still a potential takeover target.

  • With more new projects in the medical, consumer and automotive fronts, we expect the group’s earnings to grow this year. Fu Yu also could – concurrently – reward its investors with attractive dividends. The new investor owns 29.8% of the company, which is very close to the mandatory takeover threshold of 30%. As a result, we do not rule out a potential privatisation exercise ahead – although this may not happen in the near term, as the new management team will have to settle in and become better acquainted with the company first.

Fu Yu - Company Report Card

  • Latest results. Fu Yu's FY20 PATMI rose 33.3% y-o-y to S$16.9m, mainly due to higher-margin products. This came in spite of a slowdown in sales, which was attributed mainly:
    1. Business disruptions as a result of government measures taken to arrest the spread of COVID-19, as well as
    2. weaker end-user demand caused by a downturn in the global economy.
  • Balance sheet/cash flow. As at end-FY20, Fu Yu’s net cash position remains at S$106.6m. We expect this to continue improving, as it should still generate positive cash flow going forward.
  • ROE. Fu Yu’s ROE has been at a steady 10.1-10.9% over FY18-20. We expect ROE to continue growing steadily, as the company continues to perform well.
  • Dividend. Fu Yu’s FY20 dividend amounted to 1.6 cents, implying a solid yield of 4.7%.
  • Management. Hew Lien Lee was appointed as acting CEO in May 2014, before he was subsequently promoted to CEO in Feb 2016. Hew has also held the positions of Executive Director and Chief Operating Officer since Mar 2017.

Fu Yu - Investment Case

This stable and resilient counter remains a Top Pick.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-05-05
SGX Stock Analyst Report BUY MAINTAIN BUY 0.37 SAME 0.37