Fu Yu Corp is attractive compared to peers, but not without risks

Fu Yu Corp is attractive compared to peers, but not without risks

Michelle Zhu
10/01/18, 11:12 am

SINGAPORE (Jan 10): CIMB Research likes Fu Yu Corp for its reputation as an established plastic injection specialist as well as its diverse customer base, strong balance sheet and attractive historical valuations based on the research house’s preliminary assessment.

The company is currently in the midst of privatising its Malaysia-listed subsidiary, LCTH Corporation, through a selective capital repayment exercise.

See: Fu Yu to privatise LCTH for $20.3 mil via selective capital repayment

In an unrated reported on Tuesday, analyst William Tng highlights Fu Yu as a company with the highest historical FY16 dividend yield of 7.5% among its peers – above the industry average of 4.3%.  

Presently, Fu Yu trades as a historical FY16 P/E of 14.3 times. This is also above the industry average of 14.1 times with a price-to-book value (P/BV) ratio and return on equity (ROE) of 0.87 times and 6.1% in terms of FY16 P/V, below the industry averages of 1 time and 7.7%, respectively, notes Tng.  

“Fu Yu serves customers from diverse industries including printing and imaging, networking and communications, consumer, medical, automotive and power tools. The company works with both direct customers and leading contract manufacturers such as Venture and Jabil Inc. Our channel checks reveal that some of its existing clients include Hewlett Packard Inc and VeriFone Systems Inc,” says the analyst.   

Tng also emphasises the group’s strong balance sheet with its net cash position as at end-Sept 2017 with zero debt, as well a net cash per share of 12.6 cents or 63% of its 20-cent share price at the close of last Friday.

Nonetheless, he remains cognisant of foreign exchange (forex) risks faced by the company  as 80% of its revenue is denominated in US dollars, while only 50% of its costs are in the same currency.

“As Fu Yu does not adopt a hedging policy, any weakening of the US dollar versus the local operating currencies (Singapore dollar, ringgit and renminbi) will have an adverse impact on both the gross margin level and net profitability,” he cautions.

As at 11:08am, shares in Fu Yu are trading 1.5% higher at 20 cents. 

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