Fu Yu Corporation which used to give out high dividend yield of 7% is in an imminent crisis. For the past 12 months, Fu Yu Corporation share price has been
spiralling non-stop downwards. From S$0.265 per
share 12 months ago to S$0.160 per share as at 8 August 2023, this is a whopping 40% collapse in its share price. There have been a few red flags that have arisen at Fu Yu Corporation which I should discuss further below. In summary, it began with the resignation of their ex-CFO in late 2022 and more recently, a dire profit warning released by Fu Yu's management on expected losses for the 1st half of FY2023.
(Note: I have started my own You-Tube Channel and has uploaded a video on Fu Yu Corporation there- please click here)
1. Resignation of CFO
The CFO of Fu Yu Corporation Miss Hee Siew Fong has resigned in Quarter 4 of 2022. This event has always been lingering on my mind. Miss Hee was only 51 years old, which is still a relatively young age, for a CFO to want to leave. She has been with Fu Yu Corp and the previous management for 7 years. Within a short span of the new management taking over, Miss Hee has resigned. It was announced on 7 October 2022 that the Company and Miss Hee have agreed to part ways mutually by a settlement agreement. Personally, I think that the enigmatic resignation may have been a clash in terms of vision or direction such as future business strategic growth differences. It may also have to do with clash in financial resource allocation. Also, I have seen in some cases the resignation of key accounting and finance personnel (except for genuine old age retirement) does not bode well for an organization.
2. New Supply Chain Management Low Margin and Risky
The new supply chain management service segment by the new Management sucks big time with very tiny net profit margin percentage. This is as good as not doing it. Initially, I thought that Fu Yu has got a new growth engine with this supply chain management services segment introduced by the new management team. For FY2022, this business contributed a staggering S$100Mil dollars in terms of revenue to Fu Yu but only contributed a tiny net profit of S$1.9Mil dollar which is a mere 1.9% net profit margin. I have no idea how this business works and also the risks associated. Initially, I thought that this is like a back to back consolidation of trade in physical commodities with minimal risk but I was totally wrong.
For Quarter 1 2023, this new business turned into a net loss of S$2.4Mil dollars on a revenue of S$9.7Mil. I think that it is a waste of management time to be devoting resources & efforts to this business and that the management team should just sell it off and focus on its core manufacturing business and transformation map 2.0. The risk and reward ratio does not align or make sense to me personally especially in view of the Quarter 1 2023 business updates.
3. Profit Warning
Unfortunately, the worst has yet to come. On 28 July 2023, the Board of Directors of Fu Yu Corporation released a profit warning to inform shareholders that the Group is expected to report a net loss for first half of 2023. It appears to me that the new management of Fu Yu Corporation is running the Company to the ground.
Parting Thoughts
I have already sold off all my Fu Yu shares in early June of 2023 as I became extremely disillusioned with the new management team. I have re-deployed capital to other investments as I think that the good old days of Fu Yu Corporation being a cash cow is over. Instead, Fu Yu has turned into a profusely bleeding cow.
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