Fu Yu Corp Ltd (SGX: F13): Looking to Grow Its Biomedical Business
Recommendation: Non-rated
- Current Price: S$0.127
- Date of Report: September 6, 2024
- Broker Company: CGS-CIMB Securities
Investment Thesis:
Fu Yu Corp Ltd, a precision plastic components manufacturer, is expanding its focus on the biomedical sector through its Smart Factory (SF) in Tuas, Singapore. The company held its 1H24 results briefing and a factory tour for shareholders and the media on September 3, 2024, where it highlighted its growth strategy targeting higher-precision tooling and manufacturing for the biomedical sector.
Key factors driving this investment opportunity include:
- Smart Factory Strategy: Fu Yu’s Smart Factory is pivotal in offering advanced injection molding and 3D metal printing technologies, aimed at producing highly precise components for biomedical devices. The factory is designed to manufacture precision parts with tolerances between 2–5 microns, making it ideal for complex biomedical products such as endoscopes and in-vitro diagnostic devices.
- Shift to Biomedical Focus: The establishment of Fu Yu Biomedical signals a strategic shift toward higher-margin biomedical manufacturing. This includes producing components for critical devices such as syringes and diagnostic equipment, positioning the company to benefit from growing demand in the healthcare sector.
- Financial Overview: Fu Yu reported a small net profit of S$72,000 for 1H24, a turnaround from the net loss of S$10.1 million in FY23, driven by weak demand, higher expenses, and goodwill impairment. Despite this, Fu Yu’s gross profit margin remains under pressure, with a decline to 6.7% in 1H24 from 24% in FY20. The company is currently trading at a historical FY23 price-to-book value (P/BV) of 0.70x.
Valuation and Risks:
- No Dividends: Fu Yu did not pay any dividends in FY23 or 1H24, a stark contrast to its previous dividend yield range of 7.9%-39.0% between FY19-FY22.
- Net Cash Position: As of June 2024, Fu Yu holds a net cash position of 6.89 Singapore cents per share, representing 54.2% of its closing price of 12.7 Singapore cents.
- Expansion Risks: While Fu Yu’s entry into the biomedical space provides growth opportunities, the company faces risks related to the high precision and stringent regulatory requirements in this sector.
Thank you
