RHB Research Group analyst Jarick Seet remains optimistic on Fu Yu Corp’s future given its shift to higher profitability, healthy cash balance, and privatisation prospects.

He maintains his ‘buy’ rating for Fu Yu with a higher target price of 37 cents from 33 cents following a 7% rise in estimated FY2021 ending December PATMI on "a leaner cost structure and continuing shift towards higher margins".

“With $106.6 million in net cash and 5% FY2021 yield with good prospects – as well as a privatisation angle – we remain optimistic on Fu Yu Corp’s future and retain our recommendation on this stock,” he writes in an April 13 research note.

Despite Fu Yu’s recent change in leadership after its founders retired following a change in the controlling shareholder, Seet highlights that management remains unchanged for now.

New executive directors Choo Boon Tiong and Seow Jun Hai will continue working closely with management and the rest of Fu Yu’s board while they assimilate with the company.

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Seet notes that Fu Yu has a strong next cash position of $106.6 million as of FY2020 with zero borrowings, a product of prudent cash control by management. The cash balance makes up around 51% of its market cap.

He also expects Fu Yu’s dividend per share for FY2021 to amount to 1.7 cents, higher than the 1.6 cents in FY2020, which results in an attractive 5% yield. 

Seet is bullish on Fu Yu’s outlook for the rest of the year.

“With further new projects in the medical, consumer, and automotive fronts, we expect a positive growth momentum for FY2021. We also think it can – concurrently – reward investors with attractive dividends despite an estimated temporary drop in profits for FY20,” he says.

He also notes that a potential privatisation is not off the table as Fu Yu’s new investor, a variable capital company managed by Pilgrim Partners, owns 29.8% of the company, close to the mandatory takeover threshold of 30%.

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But he does not see a takeover happening in the near term, believing that the new investors and team will have to settle in and get to know the group better first. 

Seet notes that key risks to his call include an economic slowdown, a worsening of the US-China trade war, and an escalating spread of new Covid-19 cases.

As at 4.30pm, shares in Fu Yu are trading flat at 32 cents.