SINGAPORE (May 11): RHB has downgraded its call on Fu Yu Corporation from “buy” to “neutral” with a lower target price of 23 cents from 27 cents previously, following a disappointing 1Q17 set of results. 

The fabricator of precision moulds this week posted a 46.3% decline in 1Q earnings to $0.5 million, which was due mainly to a slowdown of sales in China and Malaysia.

(See also: Fu Yu reports 46.3% fall in 1Q earnings to $0.5 mil)

In a Tuesday report, analyst Jarick Seet recommends investors to keep holding on to the stock as he believes a dividend payout of 1.5 cents is still feasible despite the drop in earnings due to its balance sheet which still remains strong as well as a healthy net cash position of $101.8 million.

This comes despite Seet’s observations that Fu Yu’s peers are “faring much better in the current climate” as compared to the group’s decline in revenue, which the analyst finds discouraging.

Seet nonetheless underscores the group as an attractive privatisation and takeover target, given its zero debt and strong cash generation capabilities in addition to low capex requirements.

“[Fu Yu’s] net asset value of 22.7 cents/share is significantly lower than the current market value. Peers like Broadway Industrial Group Ltd and Chosen Holdings Ltd were also recently acquired at much higher valuations. In addition to the recent wave of privatisation and acquisitions across the market, we believe the company is an attractive target for takeover by its industry peers,” elaborates the analyst. 

Shares of Fu Yu are down 2 cents at 20 cents.