Fu Yu Corporation- Former Super Hero Cash Cow Became Bleeding Cow.

What a change of fortune for Fu Yu Corporation ("Fu Yu Corp") since the original owners sold off the business to the new owner.  Fu Yu Corporation was sold by its founding shareholders-Ching Heng Yang, Tam Wai, Ho Nee Kit, and Hew Lien Lee- to a fund managed by Pilgrim Partners on 18 January 2021. On that date, Pilgrim Partners’ vehicle acquired approximately 29.8% of the company (around 224 million shares) at S$0.26 per share, in a deal valued at roughly S$58.3 million. From a former superhero dividend cash cow generator, Fu Yu Corp has unfortunately became a shadow of its former self. 

1.  Opening of Smart Factory and Venture into Bio-medical Market Segment

Apparently, the opening of the smart factory which have state of the art technologies such as 3D printing and automation in Singapore as well as the new strategic growth into bio-tech sector, did not boost revenue and net profit. Worse still, the business performance went opposite and is now operating in a net loss position. 

2. Recent New Woes- Infighting Among Internal Stakeholders

Victor Lim, one of the substantial shareholders wanted a board seat with executive power to push forward a strategic reset for Fu Yu Corp. The crash between the senior managmenet team and Victor Lim has been onging since 2024. This does not bode well for the entire business when its leadership team is distracted from running the business. Saying that, my personal thoughts are that Victor does have valid concerns on the current direction of the business which is clearly not working out as one can see from the losses suffered since the exit of the founding shareholders.

3. Corporate Governance Issues

The fiasco of the USD3Mil in unverified payments and email irregularities in Fu Yu Supply Chain Solutions seems to be unresolved and investigation are still ongoing.

Parting Thoughts

As of 18 June 2025, its share price is traded at S$0.09 per share. This is a far cry from its glorious days of S$0.25 to S$0.30 per share range before the exit of the founding shareholders. Hope that most retail shareholders had already exited last year before the crash to below 10 cents a share. 

Fu Yu Corporation Sliding Into Oblivion- Once Remarkable Cash Cow Becomes Bleeding Cow.

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. 

Investment Portfolios Updates (7 July 23) - S$538K and Projected Annualised Passive Income of S$53K.

The stock markets had a good recovery over the last week. However, my portfolio remains in the doldrum-all additional capital injection over the past 6 months into the SGX seems to be sucked into a bottomless blackhole. I have made some adjustments to the dividend income yield projection listed on StocksCafe for US office REITs by taking a further haircut of 25% to reflect forward dividend returns. (Note: Please also refer to my other Family Portfolio which is projected to yield +S$20K per annum).

 1. Portfolio 1- Stocks held in SGX Central Depository 

(Note: This portfolio is designed to provide immediate dividends for use as it is under my own CDP account and the dividends credited goes directly to my bank account.)

The major change here was the selling off of Fu Yu Corp and switching to Keppel Corp  and OCBC over the past 1 month- please read more here: "SGX Listed Fu Yu Corporation No Longer A Cash Cow- 3 Things To Be Wary". I have been building up my position in Keppel Corp, which is similarly undergoing a business transformation, in both my Portfolio 1 and Portfolio 2.

I have also been busy building up additional stakes in Netlink Trust to ensure sufficient diversification away from REITs. 

2. Portfolio 2- Margin purchased securities

(Note: My margin purchased securities has grown to a sufficient scale to sustain itself and can pay off annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

(i) On 5th May 2023, I have sold off all my 16,000 units of holdings in Mapletree PanAsia Commercial Trust @S$1.72 per unit. All proceeds have been reinvested into Keppel Corp. Please read more here: " Saying Goodbye to Mapletree Pan Asia Commercial Trust".

(ii) Added 4,000 units of AIMS APAC REIT during its recent rights issue exercise to finance AEI initiatives. Please see "AIMS APAC REIT Announced Fund Raising For Asset Enhancement And Property Redevelopment- Important Timelines To Take Note".

3. Portfolio 3 (with Tiger Brokers)- Venture into higher risk as well as capital growth stocks here

Sold off whatever remains of Fu Yu Corp and partial disposal of Alibaba and switched to DigiCore REIT. Please refer to my previous post on rationale: "US Digital Core REIT- Worst Maybe Over With Unraveling of Stalking Horse Bid by 16 July 2023".

4. Portfolio 4 (Other Investments)- Non-listed Equities+ Endowus

(a) I have added PIMCO GIS Income Fund and Allianz Global High Yield Fund to my existing Fidelity Global Dividend Fund in Endowus to create a "Balanced Fund" portfolio that targets to return distribution of 5.5% yield per annum. This is a 20% equities and 80% fixed income portfolio- the equity component will allow one to still have some upsides in terms of long term capital appreciation from global equities on top of having a high distribution payout on a monthly basis. 

(b) The Endowus Secure Cash a money market fund that is offering a target of 3.7% to 3.9% annual return on cash placed. Withdrawal can be anytime and there is no lock in period. 

(c) The Endowus Enhanced Cash seeks to pay out higher distribution of 4.2% to 4.5% per annum. Have put some funds here also to test run. So far, the return has been worst than the Endowus Secure Cash with negative returns on some days.

Summary

I am extremely disappointed with my Alibaba holdings which seems to have become a value trap and incurring lots of opportunity cost. The only consolation is that I have stopped adding on to it and Alibaba forms only a small portion of my overall portfolios. Nevertheless, I will still be holding on to the remaining Alibaba shares and hope that with the upcoming IPO of the major business divisions, it can finally unlock value for the long debilitated share price.

SGX Listed Fu Yu Corporation No Longer A Cash Cow- 3 Things To Be Wary.

Recently, I had a review of some of my existing holdings in my portfolios and I was disappointed that Fu Yu Corporation ("Fu Yu") share price performance has been slipping. Its unit price has dipped from its S$0.210 average to S$0.178 per share. The worst aspect is that its key manufacturing performance, post the buy-out of the old management team, seems to be sliding from bad to worst. Management has also slashed the usual dividends payout in May'23 relative to prior years. I have already commenced cutting down the majority of my stakes in Fu Yu Corp (87% reduction) after taking a deep dive into its latest 2023 Q1 operation updates as well as its most recent full year financial statements and will only keep a tiny stake of 20,000 units (approximately S$3,580 @S$0.178 per share as at 1 June 2023). There are 3 points that is currently giving me a jittery vibe with regard to the current Fu Yu Management team albeit the common understanding that the global economic situation has slowed down drastically and affecting their business.

1. Fu Yu previous CFO Ms Hee Siew Fong (aged 51 years old) has resigned in Q4 2022

This event has always been lingering on my mind with regard to Fu Yu. Ms 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, Ms Hee has resigned. It was announced on 7th October 2022 that the Company and Ms. 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. The new supply chain management service segment by the new Management sucks big team with very tiny net profit margin percentage- as good as not doing.

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 in terms of revenue to Fu Yu but only contributed a tiny net profit of S$1.9Mil 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 Q1 2023, this new business turned into a net loss of <S$2.4M> on 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 Q1 2023 business updates.

(Note: Also, from the AGM queries, apparently, I am not the only shareholder expressing concern about this "new supply chain management" business).

3. Close to 50% cut in dividends as well as changing to a cheaper auditor Baker Tilly relative to KPMG LLP

The May 2023 dividend payout has been cut drastically by the management. This seems to imply that either the Company is losing sales of existing customer fast or that its cost control is inadequate to address further potential decline in its business. 

I also do not like the part that Fu Yu made a cryptic statement that its "board and audit committee believe that it is timely to change auditor (KPMG LLP) for the forthcoming financial year ending 31 Dec 2023 considering that it is an opportune time to benchmark the audit fees and realise cost efficiencies".  To put it bluntly, Fu Yu is desperate enough to do cost cutting by doing away with the Big 4 audit firm and instead uses a small mid-size audit firm (Baker Tilly). I would not be too worried if they had instead change to any of the other three Big 4 audit firms (it is the hard truth that the best talent in public accounting are in the Big 4 audit firms) but by such a move, this seems to be insinuating that Fu Yu management are troubled by their firm's future business performance.   

Parting thoughts

While I was initially excited at the venture into precision medical devices manufacturing as well as the unleashing of the upcoming newly built SMART factory in Singapore, my optimism for Fu Yu under its new management has eroded. I sensed that something is not going well with the current business as well as its future outlook with the above events occurring hence I am selling off most of my stakes in Fu Yu Corp and re-investing the proceeds into a SGX listed blue chip company that is similarly undergoing a business transformation that I have more conviction under a proven management team.  

Investment Portfolios Updates- S$613k (2 Sep'22)-Added Additional Alibaba, Capitaland China Trust and Fu Yu Corp.

With the US Federal Reserve still combating inflation, global stock markets remain in doldrum with the ever increasing borrowing rates. The "Big Short legend" Michael Burry holds the view that the S&P 500 will crash below 2,000 points (50% plus decline) but of course, he has been predicting a major crash since 2019. Recent rallies are nothing but fake bear market rallies according to this group of pessimistic investors. Other investors held the contrarian view that the stock market will rebound soon in another 2-3months once inflation is under control and whereby US Federal Reserve start to reverse monetary policy to fight global recession after keeping severe inflation in check. Commodity prices, oil prices and lower employment rate seem to suggest that the red-hot global economies are gradually slowing down. 

1. Portfolio 1- Stocks held in SGX Central Depository 

(Note: This portfolio is designed to provide immediate dividends for use (if required) as it is under my own CDP account and the dividends credited goes directly to my bank account.)

i

I sold off some of my Ascendas REIT in early July 22 and purchased DigiCore REIT ("DC REIT") which I held on for 1 month. In view of the sudden August 2022 surge in DC REIT market prices which resulted in the extremely low distribution yield of less than 5% for DC REIT as well as the issue of major tenant facing bankruptcy, I have exited all my positions in DC REIT at US$0.865 per unit and took an immediate profit of US$2,440 (S$3,318). 16% realized return within a month is equivalent to waiting on capital deployed for 3 years to get the equivalent income distributions. I have since re-deployed the sales proceed back to United Hampshire US REIT and Ascendas REIT. 

2. Portfolio 2- Margin purchased securities

(Note: My margin purchased securities has grown to a sufficient scale to sustain itself and also to repay annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

The slight change made here was the additional investments into 5,000 units of Capitaland China Trust at average price of S$1.11 per unit in late August 2022. 

US Office REITs in my holdings continue to perform badly. Manulife US REIT held the worst performance REIT in my entire portfolio with losses of <19.35%>. The fortunate thing is that the high distribution yield of the 3 US office REITs helped to reduce the overall unrealised capital losses. 

Overall, for my margin portfolio, the dividends received since 1 Jan 2021 outweigh my slight unrealised capital losses by +S$40,059. The income focus investment approach is still holding up well despite the economic storm that has been raging relentlessly for the past 3 years.

3. Portfolio 3 (with Tiger Brokers)- Venture into higher risk as well as capital growth stocks here

Major change here is the disposal of all my Dasin Retail Trust due to the heighten probability of the Trust defaulting on its existing bank loans which it has been struggling to renew. Latest red flags is the huge loss of S$56.4Mil for 1st half of 2022 as well as the declaration that no distribution will be paid out to conserve working capital. Please see "Dasin Retail Trust And Investors In Trouble- Loss of S$56.4 Mil for 1st Half of 2022 And No Distribution Being Paid Out Red Flag".  

I have also added additional investments into Alibaba (800 shares), Fu Yu Corp, SingMedical as well as Lion-OCBC Sec HSTECH.

Summary:

I have unpaid S$21K of dividends upcoming for this month of September 2022. Most likely will be using the bulk of it to pay down on my margin loan in view of the stock market turbulence as well as the higher financing cost these days.

Fu Yu Corporation (Super Hero Cash Cow)- Special Dividend of 10.15% Yield Declared and New Business Segment Acquired

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

1. Fu Yu Corporation Shot Up 40%- Trio Co-Founders Sold Off Majority Stakes To Private Equity Fund And Went Into Retirement.- 21 Jan 2021

2. Fu Yu Corporation- Super Hero Cash Cow New Growth Path- To Expand Operations Capability in Singapore -17 Jan 2020

3. Fu Yu Corporation- SUPER Hero cash generating abilities-2 Jun 2018

Fu Yu Corporation Shot Up 40%- Trio Co-Founders Sold Off Majority Stakes To Private Equity Fund And Went Into Retirement.

Superhero strength and superhero cash generating abilities indeed best describe Fu Yu Corporation ("Fu Yu Corp"). Earlier this week, I was surprised to see that Fu Yu Corp stock price has shot up by 40% relative to my average entry purchase price of S$0.205. Turns out that the trio co-founders has sold off the majority of their stakes to a private equity fund. 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. This works out to a valuation of S$0.26 per share. 

1. Is Fu Yu Corp overvalued at S$0.290 given last major sales is at S$0.26 per share? Time to sell?

Based on net assets per share, it is showing S$0.217 as per the recent announcement. However, there was an analysis report by UOB Kay Hian which had interviewed the management then to reveal that the leasehold properties were recorded at historical value convention. The fair value upside is around S$50Mil. Hence this will give an adjusted net assets per share at S$0.284. Current market price is around S$0.290 as at 21 January 2021, which thus suggest some slight overvaluation by the market.

If we are looking at earnings multiples, the current EPS of S$0.0169 per share means that market price is at 17 times of earnings. Historically, this has been around 12 times. Therefore, from earnings multiples perspective, current market price seems overpriced. 

2. So what happens next with the leaving of the trio co-founders?

The 3 directors who sold off their majority stakes have went into sudden retirement. There is not much information on the new directors taking over the founders except that they were of banking background and can add value to business development via their vast banking network. I am actually quite worried as no one seems to have manufacturing background. In terms of operations, will the new directors be as experienced and nimble as the trio cofounders in knowing exactly when and how to react fast  taking into context  the macro-economic situation via scaling up and scaling down production operations? Timing is essential in this business else the business will be bleeding profusely non-stop. 

I have dropped a note to the Investor Relations team to be more transparent and release more information on the background of the new directors other than formerly from "banking" and full stop.

3. Dividend yield.

Fu Yu Corp has declared a final dividend of S$0.01 per share. This brings the total dividends given for FY2019 to S$0.016 per share. This is a dividend yield of 5.52% and a payout of 95% of earnings for the year. The key question as per point 2 as aforesaid mentioned will be can the new directors maintain such excellent results?

Summary

As per above mentioned points, it does not appear to be very attractive anymore to hold long term stakes in Fu Yu Corp given the recent run up in price. It seems now more reasonably valued albeit on the high side. Not sure on the new management team's plan in place but I am worried over the experiences of the new directors. In the absence of further disclosure of strategic future plans of the new team, I have taken out the unrealized profits by encashing approximately S$10K earlier this week for re-deployment into other stocks. But have retained around two-third stakes in Fu Yu Corp. Good attributes of Fu Yu Corp will be zero leverage and high cash balances in its financial position. The payout of 5.52% is also still decent. 

Please also refer to my previous posts on Fu Yu Corp:

1. Fu Yu Corporation- SUPER Hero cash generating abilities- 2 June 2018

2. Fu Yu Corp Super Hero Cash Generating Abilities Strikes Again- Returns 100% Profits As Dividends to Loyal Shareholders- 3 March 2019

3. Fu Yu Corporation- Super Hero Cash Cow New Growth Path- To Expand Operations Capability in Singapore-17 January 2020

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)

Fu Yu Corporation- Super Hero Cash Cow New Growth Path- To Expand Operations Capability in Singapore

Share price of Fu Yu Corp has surged by 52% relative to one year ago. The main reason for the sudden spike in January 2020 was due to the announcement of the redevelopment of its 7 Tuas Drive premises. Fu Yu Corp is embarking on a drive to expand and improve its operations in Singapore through the construction of a larger building to house a factory, warehouse and office space. 

1. Fu Yu Corp retained too much cash on its balance sheet which are none productive- Good and Bad

As at 30 September 2019, total cash on the balance sheet was a staggering sum of S$84.6Mil which is S$0.112 per share. The good point is that based on market price of S$0.285 as at 17 January 2020, this means that 38.8% of Fu Yu Corp fair value are being backed up by physical hard cash. The bad point however is that most of these cash are underutilized and none productive. 

The redevelopment and expansion plan actually come across as a pleasant surprise for me. The excess cash are now being reinvested to boost production capability and also to improve productivity. 

These are definitely worthwhile and value adding to the business and shareholders. Fu Yu Corp intended to fund S$15Mil of the entire projected capital expenditure from internal funds.

2. Debt Free Balance sheet

Fu Yu Corp does not have any bank borrowings at all on its balance sheet except for some lease obligation being capitalized upfront as part of the change in new accounting standard on application of the “Right of Use” model for operating leases. The current cash pool will provide a relatively high margin of safety for Fu Yu Corp and its seasoned senior management team to weather any sudden economic downturn. 

3. Is there any further potential upside in Fu Yu Corp’s share price?

Yes. Ever since the announcement of the redevelopment of the Tuas premises, analysts have been busy re-rating the target price. The most optimistic target price was set by DBS Research of S$0.350 per share which is another potential 20% capital appreciation. I believe this is likely in the long run given that Fu Yu Corp has been booking in its owned properties at cost. This represented a further estimated S$50Mil revaluation gain in fair value for its properties that remains hidden. 

Summary and other thoughts

Even though my average entry price for Fu Yu Corp is approximately S$0.192 per share (48% capital gain), I think that now is still not the time to sell Fu Yu Corp. Hidden intrinsic value such as those from its properties can be further unlocked if there is a buyout by potential suitors. 

In addition, I strongly believe that Fu Yu Corp is an attractive target for M&A given its new medical industry and automotive customers’ exposure. At the current market price of S$0.285 per share, Fu Yu Corp is still giving out an annual dividend yield of 5.5% with upsides from the business expansion as well as productivity cost savings from high tech machinery being purchased. Therefore, one can continue to wait for future M&A offer and at the same time, get part of the earnings realized from dividend declaration by Fu Yu Corp. 

Please also see my previous articles and write-up on Fu Yu Corp

(i) Fu Yu Corporation- SUPER Hero cash generating abilities

(ii) Fu Yu Corp- Good Performance For FY2018 And Sustainability Of 8% Dividend Yield

(iii) Fu Yu Corp Super Hero Cash Generating Abilities Strikes Again-Returns 100% Profits As Dividends to Loyal Shareholders

Fu Yu Corp Super Hero Cash Generating Abiliites Strikes Again- Returns 100% Profits As Dividends to Loyal Shareholders

Fu Yu Corp has done it again and delivered another sterling results on its FY2018 financial performance with a 165% jump in net profit to S$11.88Mil. Just like Wolverine in X-Men with super healing, Fu Yu Corp has showcased its superpower in cash generation from its business operations. For FY2018, it has increased its dividend payout by 0.1 cents from 1.5 cents in FY2017 to 1.6cents in FY2018. This represents close to 100% of its net profit being given back to reward loyal shareholders. Based on the latest closing price of S$0.205, this is a 7.80% dividend yield for FY2018.

Huge Jump in Net Profit for FY2018 relative to FY2017

Zero Bank Borrowings/Debts

There is no debt on Fu Yu Corp statement of financial position. I need to emphasize that besides not having a single cent in debt, Fu Yu Corp is sitting on a huge pile of cash balances totaling S$80.3Mil. Besides diversifying its revenue sources, management has also successfully restructured production cost efficiency. The excess capacity in its plants, as well as its massive cash hoard,  also makes it an attractive M&A target which should eventually further unlock its intrinsic value by another 20% to 30%. For FY2019 which is coming off the successful fine-tuning in business strategies implemented over the last 2 years, Fu Yu Corp should be able to deliver another year of good performance barring any unforeseen downturn in macro-economics environment.

Parting Note on Future Outlook
In particular, I like the strategies that the management has laid out for the future direction of Fu Yu Corp business development. The business development team will continue working to expand market share with existing customers and to diversify their customer base across targeted market segments and to secure projects with longer product life cycles and higher growth potential. This should enhance business resiliency and stability amidst the challenging environment.

P.S: Please refer to my previous posting- "Fu Yu Corporation- SUPER Hero cash generating abilities".

Fu Yu Corp- Good Performance For FY2018 And Sustainability Of 8% Dividend Yield.

I am looking forward to February 2019. Well, not just because of the Lunar New Year but also because I am anticipating the release of the full year results of Fu Corp for FYQ4 2018 and its entire year financial performance towards the end of February 2019.

I have previously written on Fu Yu Corp being a dividend superhero. It virtually holds no bank borrowings on its statement of financial position and dishes out approximately 8% dividend yield. The revenue and net profit attributable to shareholders for the last 2 quarters have been shooting up.

I have always wondered over the sustainability of its 8% dividend yield and agreed that the huge cash on hand can no doubt sustain it for a few years. The only long term concern is that I do not see how the high dividend rate can be sustained perpetually if the results were like FY2017 of merely S$4.48Mil per year and the Company keep paying out from accumulated earnings. Sooner or later, it will be used up. Good news is that for Q2 FY2018 and Q3 FY2018, Fu Yu has performed exceedingly well. A cool S$8.4Mil earned in just 2 quarters relative to the whole year of only S$4.48Mil for FY2017. This is at least a 100% jump in profitability for upcoming FY18 barring unforseen circumstance such as unannounced substantial losses during Q4FY2018.

Things to watch out for:

1. On 18 Sep 2018, Fu Yu Corp announced the resignation of its Group Business Development Director (last day with the organisation is on 7th October 2018) to pursue other personal interest. Now the strange thing about such announcements for resignations of key personnel is that the reasons given are usually those very polite responses such as "pursuit of personal interest" or "retirement".  Personally, I think one has to ponder more deeply into it. It could reflect internal disagreements among the senior management team or unhappiness over the political/cultural undercurrent in the organization. It can also mean an ex-staff setting up a rival company. Hence it can indicate future development for the better or for the worse. The still unannounced Q4 result is thus crucial to see whether the current wind blowing has changed direction.
2. Again, another weird trait of mine is that my risk tolerance level is not high in particular for manufacturing business. Despite the huge jump in its net income for Q2 2018 and Q3 2018, Fu Yu Corp still made up less than 3% of my current stock portfolio. The business itself faced much competition from other rivals and is very dependant on marco-economic changes as well as the talent of the management team in resource control of daily operations. Look at the previous years of financial history as well as the principal activities which point to challenging business conditions at times.
3. During my accumulation phase (bought 61,500 shares at an average of S$0.171) last year, I often find it hard to get my hands on the stocks of Fu Yu as it is thinly traded. Hence vice versa, if one wants to sell urgently, you may find yourself encountering a problem trying to liquidate it.

Parting Thoughts:

Keeping an eye out for the upcoming results announcement of Q4 FY2018 financial performance. Also, if there is no major deterioration in its future financial performance and business outlook. I will probably keep holding on to the current stock on hand for Fu Yu Corp. The debt-free balance sheet does offer some form of safety and security to one's overall investment. In addition, Fu Yu Corp is a potential M&A target by other industry players. Maybe the current management may decide to retire and sell off their entire shareholdings in another 4-5 years time.

P.S: Please refer to my previous posting- "Fu Yu Corporation- SUPER Hero cash generating abilities".

Fu Yu Corporation- SUPER Hero cash generating abilities

Superhero strength and superhero cash generating abilities best describe Fu Yu Corporation ("Fu Yu"). Fu Yu is a business listed on the Singapore Stock Exchange focusing on fabrication of precision moulds as well as sub-assembly of precision plastic parts and components. The Fu Yu Group of companies have non-existent bank borrowings on the face of their statement of financial position. Yes.....this is not a typo error...zero borrowings from the bankers. It is even sitting on a cash hoard of over S$98.4Mil as at Q1 2018 which was built up over the years. This represented an impressive translation of S$0.131 cash value per share. Its share price is around S$0.18 per share. Hence 66% of its market value is directly supported by the fair value on its mammoth cash position. It was also giving out over 8% in dividend yield in the previous years. 

I mean that this is no simple feat considering that Fu Yu is in the business of manufacturing and having to deal with complexities such as marketing & business development to maintain the top-line, maintaining the technical edge in manufacturing competencies, sorting out raw materials purchases, review of manufacturing process cost control, managing overseas plants and human resources in Malaysia & China and dealing with very competitive rivals. Also having to deal with macro economic climate and cyclical demand for their products requires lots of versatility.    

Based on my past few years of observation, I have to conclude that Fu Yu has a very good senior management team in place and well helmed by their current Board of Directors. The core senior management team is very important for such a business as they determine how the business should response to current economic environmental challenges and also to determine the future strategic business development. The operational teams at the ground level will then implement and execute in accordance with the business unit leaders requirement. Hence the current talent pool throughout the entire Fu Yu organisation are definitely one of the very best in their respective fields.

The question will be whether Fu Yu can continue to grow its revenue and maintain its dividend pay out to its investors.   

Review of Financial and Operational Performance of Fu Yu Corporation

2017 was not a good financial year for Fu Yu. Its revenue dropped drastically in the face of competition and general lower demand in the market.

I have included a revenue, gross profit and net income trending chart from 2012 to projected 2018 (based on simple annualisation of Q1 2018 results).

The blue line represents Total Revenue and has been on a declining trend since 2012. The interesting thing to note is that the Gross Profit line have not declined drastically in line with the drop in Total Revenue. Gross Profit Margin % have in fact improved over-time. 

Saying that, the downward revenue trending for Fu Yu is worrying as it may indicate that the Group is no longer competitive or there are major disruption in certain market segments. To address this concern, we need to further delve into quarterly revenue being generated. A snap shot and deep dive into the revenue, gross profit and net income trending by quarters (using past 3 years data) as per below:

The Q1 2018 announcement has stated that revenue is higher than the previous Q1 in 2017. There are some retail investors who heralded this as evidence that Fu Yu has successfully overcome the downtrend and is on an expansion path again. However, I would urge caution against such train of thoughts as the revenue is still showing a drop against the most recent Q4 2017. 

Next, we will need to examine what the Management of Fu Yu is doing to steer the organisation forward amidst the current economic climate. In the Q1 2018 announcement, Management has listed down various key strategic initiatives. 

Basically, to drive sustainable growth, Fu Yu management  has channeled business development resources and efforts on the following strategic initiatives:

(i) strengthening its business development team to expand market share with existing customs and make inroads with new customers (this includes embarking on digital marketing platform);

(ii) diversifying its customer base across different targeted market segments to ensure greater business stability;

(iii) focusing on products that have greater stability, longer life cycles and higher growth potential such as medical, automotive, green & security-related products and 3D printers; and

(iv) continuously improving its operations to achieve optimal capacity utilisation, high production efficiency and leaner cost structure.

The better results against prior year seems positive and encouraging. Once we have the upcoming Q2 2018 results (for half year ending 30 June 2018) released, investors will have a more concrete financial information to make a better assessment on whether the business strategies are bearing fruits to re-vitalise revenue generation.

Sustainability of its generous dividends pay out

The super impressive S$98.4 Mil in cash and bank balances is testament to the strong cash generation capabilities of the core businesses. Even though the revenue has declined over the last 2 years, the business remain profitable.

Due to the aforesaid mentioned above, there is no problem for Fu Yu to meet the cash dividends if management choose to maintain an 8%++ yield. In the absence of any surprised economic downturn or Merger and Acquisition target, the huge cash balances on hold is non-productive for Fu Yu and it makes more sense to try to return as much of it back to shareholders.

The funding required will only be in the region of S$9.9Mil extra out of previous Retain Earnings per year even if the results remain flat as at Q1 2018. This will be peanuts relative to the S$98.4Mil in cash on hand and bank. 

If the management became unreasonable and are only willing to return 100% of current year profit (and refused to utilise past Retain Earnings), then based on annualization of Q1 2018 earnings per share, the dividend yield will drop to 1.56% for FY2018, assuming a price of S$0.18 per share. However, we can see that for May 2018, management of Fu Yu had already declared a dividend of S$0.01 which is already a 5.5% dividend yield. 

In addition, another possible scenario is assuming a worst case of sudden economic downturn (Italy and EU melt-down spread to Global Economy), the dividend payout may be reduced drastically or even nil. But the size of the current cash on hand and in bank will be able to tide Fu Yu over and ride out the storm. The low CAPEX and a seasoned senior management team will be able to effectively slash the cash burn rate to conserve cash for survival mode in the circumstances as it is.

  

Valuation of Fu Yu against current market price of S$0.18 per unit (as at end May 2018)

On the subject of valuation, this becomes an extremely subjective and judgmental issue which depends on investor outlook based on the best information available at this juncture. 

On one hand, one can assume that the good old days for Fu Yu are over and the revenue will decline until the business went into the red for many years and eventually bled out. In this extreme case, the valuation will of course be near zero.

However, my personal thoughts are that based on the proven management team as well as the excellent financial track records of Fu Yu, the probability of upside are extremely high for those who choose to invest into this business. Fu Yu should be able to maintain a decent level of profitability barring major economic catastrophe on a global scale. There is also the distinct possibility of other bigger MNCs targeting Fu Yu for takeover to achieve further competitive advantage via the theory of economies of scale which surely will boost the current market value, Personally I thought its current market price is on the lower end of its intrinsic value (Net Tangible Assets per share are S$0.22 + pure cash making up S$0.131 or 66% of its current market valuation and high probability that the business will be able to make a decent profit or at least breakeven from proven track records of its cash generation ability for the next few years).