• Maintain NEUTRAL and TP of SGD0.28, 4% upside. Fu Yu Corp’s 1H22 revenue and NPAT surged 73% and 23.4% to SGD121.8m and SGD10.9m with the inclusion of its supply chain management business (FYSCS), which contributed 41% of the total revenue as well as higher sales of its Singapore and Malaysia operations despite a softer China segment. 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.

• New supply chain management positive for the group. As of 1H22, its FYSCS contributed 41% of the total revenue and 22% of total gross profit. GPM improved to 27.3% in 1H22 as the FYSCS yielded lower margin. However, the business managed to recorded a gross profit of SGD2.4m in 1H22. We believe that despite the lower margin, this business will continue to help to boost the group’s profitability.

• Resilient manufacturing business aided by Singapore and Malaysia. Sales from the Singapore operations in 1H22 climbed 4.7% to SGD26.9m from SGD25.7m in 1H21 on the back of higher demand from customers in the medical and consumer segments. This offset slower demand from automotive customers amid the global shortage in semiconductors and other raw materials. The Malaysia segment also recorded a 4.9% increase in sales to SGD18.3m in 1H22 from SGD17.4m in 1H21. This was lifted mainly by higher sales of consumer and medical products to existing customers, offset partially by lower sales of printing & imaging products. Sales from the China segment in 1H22 softened 1.6% YoY, which was attributed mainly to weaker sales in the April-to-June quarter and implementation of COVID-induced lockdown measures in China.

• Hold due to attractive dividends. We maintain NEUTRAL on the counter while waiting for management to rebrand its manufacturing business and elevate FUYU’s profile as an advanced solutions provider in the high precision plastics manufacturing industry. In addition, there is the impending launch of its new “smart factory” in Singapore in 3Q22, 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 FY22F, we think shareholders are paid attractively while await the upcoming positive change.
• Using our in-house proprietary methodology, we derive an ESG score of 3.0, which is pegged around the country median. As a result, we do not apply any discount or premium to our TP.

Source: RHB Research - 22 Aug 2022