SINGAPORE (Sept 21): Fu Yu Corporation says its revenue decline over the past three years will see a reversal by early FY17, after bottoming out in FY16.

The precision injection moulds and plastic parts provider explained that its gross margins have risen from 7.1% in FY11 to 16.7% in 1HFY16. In addition, it posted a positive growth in core earnings in FY14 and FY15, even as group revenue continued to slide for the past three consecutive years.

The results improvement arose from the group’s change in sales mix toward higher-margin products. Fu Yu’s management says it sees potential for better profitability from improved productivity and value-added initiatives; higher utilisation rates and right sizing of the company; and lower depreciation costs.

Furthermore, the group could also benefit from a sooner-than-expected recovery of its two largest plants in China.

Fu Yu says its customers include contract manufacturers and direct customers from industries like consumer electronics, printers, network communications, medical & instruments, automotive, and others.

While consumer electronics represents the bulk of its sales, the group added that its next growth drivers are expected to come from the medical, automotive and solar industries, according to an unrated note on Wednesday by CIMB Equity Research.

CIMB’s analyst Ngoh Yi Sin notes that Fu Yu has zero debt and cash holdings of $97 million at end-June, which are 68% of its market value.

“With maintenance capex of typically $5 million to $10 million per annum, the company has sufficient cash to support its recently implemented dividend policy of at least 50% of earnings,” she writes. “Its maiden distribution per share of 1.5 cents in FY15 implied a 7.9% dividend yield and 80.3% payout ratio.”

At current levels, Fu Yu’s shares are currently trading at 9.5 times FY16 earnings, which is in line with its Singapore listed peers’ average of 9.7 times.

To that end, Ngoh prefers Sunningdale Tech for its diverse customer base, global footprint and possible growth through mergers and acquisitions.

Shares in Fu Yu and Sunningdale Tech on Wednesday closed at 19.4 cents and $1.01, respectively.