Fu Yu’s stellar 3Q15 earnings exceeded our expectations, with 9M15 NPAT of SGD11.9m forming 88% of our FY15 estimates. Despite a 7.9% YoY 9M15 revenue decline, 9M15 NPAT surged 129% YoY while 3Q15 NPAT rose 22.4% as the company focused on more profitable projects. Stronger USD and cost cutting measures also helped. An interim dividend of SGD0.0025 was declared. We lift our FY15 NPAT by 14.8% with a higher DCF-backed TP of SGD0.29. Maintain BUY.
■ Stellar 3Q15
Despite a 13.8% revenue decline in 3Q15, its NPAT rose 22.4% YoY to SGD5.5m as gross margins rose to 15.6% (vs 13.8% a year ago). 9M15 NPAT surged 129% YoY, accounting for 88% of our FY15 estimates, exceeding expectations.
This was mainly due
1) ongoing right-sizing exercises that drove the cost of production down
2) stronger USD as over 90% of Fu Yu’s revenues are in USD
3) focus on projects with higher profitability.
■ More dividends ahead
As expected, the company declared another dividend of SGD0.0025 in 3Q15. This is the company’s second interim dividend after their capital reduction exercise 1Q15. With its stellar results and given that c.80% of its market capitalisation is made up of net cash with no debt, we expect more dividends to be dashed out in 4Q15, translating to a 6.9% yield for FY15.
■ Beneficiary of 70% owned Malaysian cash cow
Fu Yu owns about 70% of its listed Malaysian subsidiary, LTCH Corp (LCTH MK, NR) which have also reported a stellar set of results with 9M15 NPAT up 122% to MYR15.5m. LCTH has a dividend policy to pay out at least 50% of its NPAT in which 70% of the dividends declared will flow into Fu Yu’s coffers.
■ Maintain BUY with a higher TP of SGD0.29
We lift our FY15 estimates by 14.8% and continue to remain positive on this stock despite macro headwinds. Management will continue to focus on profitability as we expect margins to improve while the right-sizing operations continue. We also expect management to reward shareholders with more dividends going forward. Our DCF-based TP (WACC 12%, TG 0%) is lifted to SGD0.29 from SGD0.28. Maintain BUY. (Read Report)
Source : RHB Research