Brokers' take

FU YU CORP | BUY (MAINTAINED)

JULY 9 CLOSE: $0.215
TARGET PRICE: $0.24

RHB Research Institute, July 9

With the ramp-up in its existing projects set to continue in subsequent quarters, coupled with further new projects on the medical and consumer and automotive front, we expect the positive growth momentum of Fu Yu Corp to continue.

In addition, with more than 80 per cent of revenue received in US dollar terms, an appreciating greenback should also be beneficial to the company.

Management is still actively seeking ways to further optimise the cost structure of its operations in the region, especially in China - such as right-sizing exercises, and the sale or lease of unutilised factory space if suitable opportunities arise.

These, in turn, would further improve margins.

We also think it is an attractive potential merger and acquisition (M&A) target for bigger players seeking immediate South-east Asia exposure, to diversify away from the US or China.

Key risks to our call are a slowdown in the economy and the US-China trade war worsening.

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KOUFU GROUP | BUY (MAINTAINED)

JULY 9 CLOSE: $0.75
TARGET PRICE: $0.95

UOB Kay Hian, July 9

Koufu Group entered into a joint venture (JV) on July 4 to expand its Supertea and R&B Tea brands into Indonesia, with the first outlet expected to open in the third quarter of 2019.

Koufu will have an effective 32.4 per cent stake in the JV, focusing first on Jakarta's Grade-A malls. Koufu will then progressively expand its footprint across Indonesia.

Koufu has built a good track record in expanding and generating profitability from the tea brands in Singapore within a short span of two years.

More importantly, the business has proven to be profitable, breaking even in the first full year of operations, and is expected to contribute meaningful net profit in 2019.

Consistent with its track record, Koufu expects the Indonesia JV to contribute meaningfully to the financial performance of the group from 2020.

Assuming a scenario where it expands at the same pace as it did in Singapore, we estimate the JV to lift Koufu's earnings by 1-2 per cent in FY2020.

Risks include failure to renew leases, inability to secure new outlets, departure of key tenants and food stalls, changing consumer preferences, higher-than-expected competition, and execution risks on expansion plans.

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