CGS-CIMB analyst William Tng has reiterated his “add” call on Fu Yu Corporation with a lower target price of 33 cents from 35.5 cents.

The reduction comes as his Gordon Growth-derived price-to-book value (P/BV) rises to 1.59 times from 1.49 times before on FY2021 BV/share.

That said, Tng has raised his earnings per share (EPS) estimates for the FY2021 to FY2023 by 2.1-8.2% on the back of the company’s higher net profit.

For the 1HFY2021 ended June, Fu Yu Corporation saw net profit increase by 20.1% y-o-y to $8.9 million.

Revenue, on the other hand, fell 1.7% y-o-y to $70.4 million.

A key highlight in Fu Yu’s 1HFY2021 results was its special dividend of 3.30 cents, and the increase in its interim dividend to 40 cents from 35 cents in the 1HFY2020.

The higher dividend makes the counter the highest dividend-yielding stock under the brokerage’s coverage for the FY2021, says Tng.

“Going forward, capital allocation will be influenced by capex needs (Fu Yu’s new plant at No. 9 Tuas Drive is due to be completed end-2021) and capital to grow the Avantgarde Enterprise (AGE) business organically and via joint ventures/partnerships/strategic alliances with third parties,” he writes in an Aug 24 report.

On July 28, Fu Yu completed its maiden acquisition of a 100% stake in AGE for a consideration of $6.05 million.

“We understand that Fu Yu hopes to lower the purchasing cost of its key raw material (resins) with direct purchase via AGE. We also believe that Fu Yu could gear up its balance sheet to grow this trading business,” says Tng.

“Earnings accretion from the AGE acquisition is offset by a higher beta assumption to 0.89 (previously 0.77), given the riskier nature of financial trading activities. Downside risks are increased competition and worsening of the Covid-19 pandemic. Higher-than–expected earnings growth and further accretive acquisitions are possible re-rating catalysts.”

Shares in Fu Yu closed flat at 29 cents, representing an FY2021 P/B of 1.58 times and dividend yield of 15.2%, according to CGS-CIMB’s estimates.

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