Plastics manufacturer Fu Yu Corp is looking forward to growth again, says CGS-CIMB Securities who is maintaining its “hold” call on the counter at a revised target price of 24 cents.
This is up 3.3 cents from its previous 20.7 cent call and is expected to has a 0.1% upside from the counter’s 24 cent price on September 10, analyst William Tng explains.
His optimism comes from the near completion of Fu Yu’s rightsizing of its loss-making operations in China. This involves the closure of its factory in Chongqing by December to streamline and optimize manufacturing operations across Asia.
Following this, the company will operate from two factories it owns – in Suzhou and Dongguan, Guangdong– as well as a leased factory in Zhuhai.
Some $1 million was recognised as expenses in relation to the closure of the Chongqing factory in Fu Yu’s results for 1H2020 ended June 30.
Meanwhile, revenue for the first six months dipped 26% year-on-year to $71.6 million following production disruptions and weaker demand no thanks to the Covid-19 health-turned-economic crisis.
Overall, net profit still grew 43% year-on-year to $7.4 million, on the back of a $2.1 million foreign exchange gain and $1.3 million in Covid-19 government support grants.
Excluding these, Fu Yu’s profits would have plunged 28.5%, Tng notes.
Looking ahead, he “expects net profit to grow again”.
“A potential upside risk is faster-than-expected recovery from Covid-19 disruptions,” adds Tng.
However, he cautions of “unfavourable foreign exchange movements, increased competition and worsening Covid-19 outbreak”.
As at 11.29am, shares of Fu Yu Corp were flat at 24 cents.
