Added Fu Yu to the Strategic Section of the Investment Portfolio. Another non Reits addition after InnoTek. Same as InnoTek was initially undecided which portfolio to put it in. So in the end, just follow InnoTek, group it into the Strategic Section of the Investment Portfolio. Thus, the path of Fu Yu should be similar to InnoTek.
Company Background
Fu Yu was established in 1978 as a partnership fabricating injection moulds and manufacturing plastic injection parts. It is a manufacturer and supplier of high-precision injection moulds and plastic parts in Asia. Currently, it has 12 plants in Singapore, Malaysia and China. The Group's operations make a complete range from design to fabrication to assembly, and include finishing activities such as silk screening, pad printing, ultrasonic welding, heatstaking and spray painting. The markets it serves include the information technology, telecommunications, automotive, medical, electronics and electrical appliance sectors.
Its might look similar to InnoTek or even Valutronics (which is in the Incubator Portfolio) but the actual underlying is not the same. As such, I am open to invest in it. Moreover, the event happened in January this year when 3 of the co-founders sold a combine 29.8% stake to a local fund management firm, Pilgrim Partners Asia (about $0.26/share) and retired. With a new substantial shareholder or even a possible takeover target, can't debate there isn't any potential in the company going forward.
Financial
Fu Yu reported a jump of 33.3% in net profit for FY20 despite a drop of 21% in revenue. Its gross profit margin also improved to 24.0% from 19.7% in FY19. Its has a net cash flow of S$106.6M with zero borrowings. A summary of its financial aspect is as followed :-
1. Cash S$106.64M
2. ROE = 10.071%
3. Current Ratio = 3.793
4. Quick Ratio = 3.484
5. Net Profit Margin = 11.024%
6. Price/Book Value = 1.311
7. P/E Ratio = 13.351
8. Dividend Yield = 5.333%
Not a bad set of financial figure despite the ongoing Covid-19 pandemic.
Investment Objectives
The business prospect going forward is definitely one of the investment objective. With a new major shareholder in Pilgrim Partners Asia, couldn't be just invest for collecting dividend only. Pilgrim Partners Asia definitely seeing something or has an idea to inject to steer the company to a better growth path. The other objective is of course potential of privatization. Pilgrim Partners Asia has a 29.8% stake, just short of 0.2% to trigger mandatory takeover. While it might not be happening in the short-term but there is a possibility with it going forward.
Like InnoTek, this investment will be aiming at accumulating at $0 cost (best scenario) or as low vested capital possible. With that, the holding price would be well below that of Pilgrim Partners Asia has paid for and providing a very good buffer.
