SINGAPORE (Sept 28): CGS-CIMB is initiating coverage on Fu Yu Corp with a "hold" and target price of $0.17, based on historical 10-year average of 0.8 times forward book value.

Fu Yu is a one-stop plastic components supplier with more than 40 years’ experience. The group has been back in the black since FY13 thanks to its restructuring efforts. In FY15, it had resumed dividend payments.

Fu Yu provides vertically-integrated services for the manufacture of precision plastic components and the fabrication of precision moulds and dies. The group’s factories are located in Singapore, Malaysia and China. Fu Yu also has a diversified customer base in the printing and imaging, networking and communications, consumer, medical and automotive sectors.

Fu Yu’s revenue has been declining over the past 12 years from FY06 to FY17). From a historical high of $461 million in FY16, Fu Yu’s revenue has fallen by 53% to $195 million in
FY17. Over FY06-09, Fu Yu suffered massive net losses due to issues such as bad debts in China, inventory obsolescence, impairment of production equipment and factory closure costs in China.

But since FY13, Fu Yu has been back in the blac as the company right sized its operations, improved production yields and efficiency, as well as streamline its corporate structure.

Non-operational measures implemented by the company included a capital reduction exercise in FY15, paving the way for Fu Yu to pay dividends in FY15 onwards.

In its outlook, Fu Yu intends to continue raising the level of automation and improve its manufacturing processes for greater efficiency and precision.

Fu Yu is currently targeting clients involved in 3D printers, security-related, medical, automotive and environmentally-friendly products.

"Fu Yu strives to raise profitability and explore other steps to improve operations. If these measures are successful, we think they could lead to stock re-rating as ROEs improve to cover its cost of equity," says CGS-CIMB Securities analyst William Tng in a Thursday report.

At this juncture, the group stated that it has not seen any financial impact from the ongoing trade war between the US and China.

"We estimate its FY18-20F dividend yields of 9.3% would be supported by its net cash balance sheet (no debt at end-Jun 2018) and positive free cash flow," adds Tng.

As at 11.33am, shares in Fu Yu are trading at 18 cents.