Fu Yu Corporation Closes Down Its China Chongqing Factory - Optimisation and Rightsizing

Fu Yu Corporation senior management has been doing a wonderful job of streamlining their manufacturing operations to rein in excess capacity and cost. On 7th August 2020 (after SGX closed for the week), Fu Yu made the announcement for the closure of factory in Chongqing, China. This is on the back of the Shanghai factory closure in previous FY2019. 

Financial impacts:

There will be a one off restructuring cost of S$1Mil for the 1st half of the financial year due to the closure of Fu Yu Chongqing. Other than that, this closure does not have a significant impact to the profitability of the group. While the revenue contribution is around 10% to the Group, the net profit contribution makes up only  1% for profit before tax numbers. 

I view this as a good time to right size the China operations of Fu Yu Corporation to reduce fixed overheads. The Group's balance sheet remain strong with a huge cash position to weather through this COVID-19 pandemic with not a single cent of bank borrowings. Hence do not think its share price will be adversely affected by the closure once trading resumes on Tuesday (11th August 2020).

(Please see my previous post: Fu Yu Corporation- Super Hero Cash Cow New Growth Path- To Expand Operations Capability in Singapore)