RHB Group Research analyst Jarick Seet has kept a “neutral” rating on Fu Yu Corp as he waits for the group’s management to rebrand its manufacturing business and elevate its profile as an advanced solutions provider in the high precision plastics manufacturing industry.
Seet has also kept his target price unchanged at 28 cents.
Seet’s report comes after Fu Yu Corp saw a “resilient performance” for the 1HFY2022 ended June.
During the period, Fu Yu Corp’s revenue and net profit after tax (NPAT) surged 73% and 23.4% y-o-y to $121.8 million and $10.9 million with the inclusion of its supply chain management business Fu Yu Supply Chain Solutions (FYSCS) as well as higher sales of its Singapore and Malaysia operations despite a softer China segment.
As of 1HFY2022, FYSCS contributed 41% of the total revenue and 22% of total gross profit.
Gross profit margin (GPM) improved to 27.3% in 1HFY2022 as FYSCS yielded lower margins. However, the business managed to record a gross profit of $2.4 million in 1HFY2022.
“We believe that despite the lower margin, this business will continue to help to boost the group’s profitability,” says Seet.
Seet observes that the upcoming launch of its new factory will also help to acquire new customers and raise the penetration rate of existing customers in target market segments.
Sales from the Singapore operations in 1HFY2022 climbed 4.7% to $26.9 million from $25.7 million in 1HFY2021 on the back of higher demand from customers in the medical and consumer segments. This offsets slower demand from automotive customers amid the global shortage in semiconductors and other raw materials, observes Seet.
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The Malaysia segment also recorded a 4.9% increase in sales to $18.3 million in 1HFY2022 from $17.4 million in 1HFY2021. This was lifted mainly by higher sales of consumer and medical products to existing customers, offset partially by lower sales of printing & imaging products, the analyst explains.
Sales from the China segment in 1HFY2022 softened 1.6% y-o-y, which was attributed mainly to weaker sales in the April-to-June quarter and implementation of Covid-induced lockdown measures in China.
Furthermore, there is the impending launch of its new “smart factory” in Singapore in 3QFY2022, of which management plans to drive business development and expand the breadth of services for its manufacturing business.
“Coupled with an attractive yield of 6.4% for FY2022, we think shareholders will be paid attractively while awaiting the upcoming positive change,” says Seet.
As at 2.22pm, shares in Fu Yu Corp are trading at 0.5 cents down or 1.89% lower at 26 cents at a FY2022 P/B ratio of 1.2x and dividend yield of 6.4%.
