Compiled by Navin Sregantan
FU YU CORPORATION | BUY (MAINTAINED)
SEPT 16 CLOSE: $0.225
TARGET PRICE: $0.285
UOB Kay Hian, Sept 16
In July, Fu Yu started voluntary liquidation of 40 per cent-owned Berry Plastics in Malaysia.
We expect the process to be completed by year-end and the earnings drag from the joint venture should drop from a $800,000 loss last year to $500,000 loss this year and to zero in 2020.
Fu Yu will be renewing its leases for 7 and 9 Tuas Drive 1 for another 20 years from 2021. It will sell 5 Tuas Drive 1 by 2020 to comply with the lease renewal term.
Last month, Fu Yu received an early termination of lease for its Shanghai factory. As a result, Fu Yu made a strategic decision to shift operations in Shanghai to its Suzhou factory which has a larger production capacity and is ideally located to serve its customers in Shanghai.
The medium-term benefits include lower overheads and better utilisation at its Suzhou factory. Fu Yu estimates the one-time expense for the Shanghai plant closure at $5.5 million and this could drag Q3 2019 net profit into a loss.
However, we think share price could be supported by a higher dividend of 1.7 cents for this year (last year: 1.6 cents), which will not be cut due to the one-off expense.
Share price catalysts include a higher-than-expected net profit and dividend, a potential takeover offer and potential corporate actions to unlock values, such as disposal of properties.
AEM HOLDINGS | BUY (MAINTAINED)
SEPT 16 CLOSE: $1.19
TARGET PRICE: $1.50
Maybank Kim Eng, Sept 16
As a result of stronger than expected momentum, AEM has raised FY2019 revenue guidance for the third time this year.
In response, we raise forecast FY2019 earnings by 10 per cent to $285 to $305 million from $265 to $280 million.
We believe our new revenue estimate is conservative as AEM has received $280 million of orders in the year to date to be fulfilled by the end of the year.
The increase in guidance is driven by stronger-than- expected order momentum of HDMT and STHI test handlers, due to the rising significance of system level test at the customer.
Although FY2020-2021 earnings are largely unchanged, we continue to see upside from new projects. FY2020 guidance, when released in January-February next year, should give us a stronger basis to forecast contributions from the hybrid project and Huawei.
A key risk to our forecasts is if there is a sharp demand drop for the customer's chips, as this could create slack capacity and delayed orders.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.
The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.