DBS Group Research analysts Chung Wei Le and Ling Lee Keng have maintained “buy” on Fu Yu Corporation as the company reported stable revenue of $34.7 million in the 1QFY2021 ended March and 23.2% higher gross profit of $8.5 million during the same period.

On this, the analysts have upped the company’s target price to 40 cents from 35 cents previously, as they raise their valuation peg to 15.2 times (+2 standard deviation or s.d.) FY2021 earnings, from 13 times previously.

This, they say, comes as they remain positive on Fu Yu’s margin expansion and higher production.

To Chung and Ling, Fu Yu Corp is currently trading at 12 times FY2021 earnings, below its four-year historical mean, and at an attractive ex-cash price-to-earnings ratio (P/E) of 6.6 times with improving core earnings.

SEE:Fu Yu Corporation founders to retire

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“We believe FY2020 was the bottom for Fu Yu’s core earnings as its operations were disrupted in 1HFY2020. With the low base effect in FY2020 and an improving economic climate, we are expecting core earnings to increase in FY2021,” they write in a May 10 report.

The way they see it, Fu Yu has been taking steps to increase its gross profit margin (GPM) through the consolidation of its production facilities in China, as well as high automated processes to improve operational efficiency.

“A potential catalyst that could further improve its gross profit margins is the completion of the redevelopment of its Singapore factory at end-2021,” write the analysts.

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The analysts say that they are also more optimistic on Fu Yu’s earnings and recovery compared to the rest of the brokerages that cover the counter.

As at end-1QFY2021, Fu Yu’s cash balance stood at $108.2 million, representing 44.9% of its market capitalisation. The stock is also currently offering a dividend yield of 5.0% for the FY2021, both of which are deemed attractive by Chung and Ling.

As at 11.46am, shares in Fu Yu are trading 1 cent lower or 3.2% down at 30.5 cents, or 1.3 times P/B, according to DBS’s estimates.