It has been a very long time since I last took a detailed look at Fu Yu Corp in my investment portfolio. I was surprised recently when the projected dividend tool from Stocks Cafe indicated that Fu Yu Corp will be crediting S$3.3K of dividends (11.38% yield) on 7 September 2021. A special dividend of 3.3 cents per share had been declared on top of interim dividend of 0.4 cents per share for the 1H 2021 results. Hence I decided to do a quick review of its current business operations.
Apparently, for 1st half results announcement, Fu Yu Corp had announced net profit improvement of 20.1% to S$8.9Mil in 1H2021 relative to S$7.4Mil in 1H2020. Fu Yu Corp financial position remained sound with cash of S$100.2Mil and zero borrowings on its balance sheet.
To demonstrate appreciation to existing shareholders for their continued support of Fu Yu Corp, the management has thus decided to declare a special dividend as a reward.
New Business Acquisition to Fuel Growth Path
Earlier this year, the trio co-founders has sold off the majority of their stakes to a private equity fund, Pilgrim Partners Asia. The co-founders have sold off 29.8% of their stakes, around 224.4Mil shares of Fu Yu Corp, for S$58.3Mil to local fund management firm, Pilgrim Partners Asia which worked out to a valuation of S$0.26 per share. So far so good, the new management team appointed by Pilgrim Partners Asia have done well in terms of cost optimization and getting new projects from its business development efforts.
Perhaps, even more interesting is that the new shareholders of Fu Yu Corp wasted no time to do an M&A to acquire a new business. To diversify the Group’s business beyond the core manufacturing business, the management have recently formed a new business arm by acquiring 100% equity interest in Avantgarde Enterprise Ptd Ltd (“AGE”). AGE is engaged in the business of providing supply chain management services for commodities. This is effectively financial trading activities.
In addition, there is actually synergy with the AGE acquisition as Fu Yu Corp hopes to lower the purchasing cost of its key raw materials (resins) with direct purchase via AGE.
As a result, Fu Yu is currently back on a potential rapid expansion path with a new growth engine in place.
Parting Thoughts
With the near completion of Fu Yu Corp Singapore factory by end of 2021, there is thus another potential catalyst that could boost the gross profit margins of its existing manufacturing business besides the new business arm of AGE. As at 1st half of 2021, Fu Yu Corp's cash balances made up 58% of shareholders' equity. Normalized dividend yield of around 5% also makes Fu Corp an attractive business at S$0.29 per share as at last trading price on 3 September 2021.
Previous Postings on Fu Yu Corp
2. Fu Yu Corporation- Super Hero Cash Cow New Growth Path- To Expand Operations Capability in Singapore -17 Jan 2020
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