Excerpts from UOB Hay Hian report

Analyst: John Cheong

Fu Yu Corp – BUY 
High and sustainable dividend yield, inexpensive EV/EBITDA. FuYu offers a high and sustainable dividend yield of 8.5% for 2019, and we expect this to increase to 9.0% in 2020, on the back of improving net profit, FCF, and strong net-cash position of S$80m/S$0.11 per share.


Share price: 
21 c

28.5 c

In 2018, FUYU raised its interim dividend for the first time in three years, and we expect further increases.

Takeover target for valuation, diversification, capacity and salary savings. FuYu could be a takeover target, given:

a) its attractive valuation at 3.0x 2019F EV/EBITDA (note that its peers were privatised a EV/EBITDA of 5.0-25.7x in the past;

b) FuYu’s geographically diversified plants and customers are highly sought after;

c) its low utilisation rate of only around 50% could appeal to potential acquirers who are in a hurry to increase production capacity; and,

d) low-hanging fruit from the savings of three cofounders’ remuneration, estimated at S$2.3m-3.0m p.a. or 20-27% of 2018 net profit.

• Disclosure of properties’ market value in 2018 annual report indicates massive hidden value. FuYu’s conservative accounting policy in recognising its properties at book value has undervalued the assets by S$50m, or 33% of its market cap (S$0.07 per share), based on its 2018 annual report.

Any disposal to unlock value could further rerate the stock in our view. The hidden value of these properties, the company’s inexpensive valuation, diversified operations and low utilisation rate make FuYu an attractive takeover target.

Share Price Catalyst

FY18 dividend

Ex date

Payment date

1.0 c

09 May 2019

23 May 2019

0.3 c

22 Nov 2018

05 Dec 2018

0.3 c

27 Aug 2018

10 Sep 2018

• Events:
a) Higher-than-expected dividends;
b) potential takeover offer; and,
c) potential corporate actions to unlock value, such as disposal of properties.

• Timeline: 3-6 months.

Full report here. 

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