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

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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“.

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