• Fu Yu (SGX:F13)’s 1H22 revenue and NPAT surged 73% and 23.4% to S$121.8m and S$10.9m 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 Fu Yu

• As of 1H22, Fu Yu's supply chain management business (FYSCS) contributed 41% of the total revenue and 22% of total gross profit. Gross profit margin improved to 27.3% in 1H22 as the FYSCS yielded lower margin. However, the business managed to recorded a gross profit of S$2.4m in 1H22.
• We believe that despite the lower margin, this business will continue to help to boost Fu Yu’s profitability.

Resilient Manufacturing Business Aided by Singapore and Malaysia

Hold Due to Attractive Dividends

• We maintain NEUTRAL on Fu Yu while waiting for management to rebrand its manufacturing business and elevate Fu Yu’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 Fu Yu's 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 target price for Fu Yu.

• Maintain NEUTRAL on Fu Yu with target price of S$0.28, 4% upside.

Source: RHB Invest Research - 22 Aug 2022