Excerpts from DBS report
Analyst: Lee Keng LING
Margin expansion offsets slight decline in revenue.
We expect the consolidation to benefit full year earnings in FY2020F, with an added lift from margin expansion from the redevelopment of 9 Tuas Drive by the end of 2020. |
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| COVID-19 to impact revenue and earnings in FY20F |
The outbreak of the COVID-19 had resulted in an extended Lunar New Year holiday and slowdown in economic activity in China.
Fu Yu produces parts for products in various industries. Photo: Company
Although the number of new cases in China has peaked, the severity and timeframe of the outbreak remains uncertain as the number of new cases outside of China is increasing.
We have trimmed FY2020F earnings by 3% to factor in an expected decline in sales, partially offset by the expected margins improvement, and also raised FY2021F/22F earnings by 9%/8% on margin expansion.
Where we differ: We are more positive on its gross profit margins from cost efficiency initiatives.
Potential catalysts: Improvement in the COVID-19 situation and manufacturing activity.
| Valuation: Maintain BUY and TP of S$0.35. We have trimmed FY2020F earnings by 3% to factor in the extended shutdown of its factories in China and the broader economic slowdown. Our current TP of S$0.35 represents an upside of 37% and is 11.8x its 12-m rolling forward PE |
Key Risks to Our View: Prolonged COVID-19 outbreak, increasing competition, escalation of the US-China trade war, sharp decline in USDSGD rate.
Full report here.
