“Maintain “buy” and target price of 28.5 cents,” says analyst John Cheong in a Monday report.
In its 2018 annual report, Fu Yu revealed that the fair value of its leasehold properties amounted to $65.7 million, with carrying amount of $15.6 million.
“This $50 million discrepancy indicates Fu Yu’s book value is undervalued by 7 cents/share or 33% of its market cap,” says Cheong.
To uncover the up-to-date value of Fu Yu’s properties, UOB pegged the value of its land to the latest transaction price.
“As a result, we derived a value of $62.5 million, slightly below the fair value estimated by Fu Yu in its 2018 annual report that amounted to $65.7 million,” says Cheong.
Cheong notes that Fu Yu’s most valuable properties are located in Singapore, followed by Malaysia and China. In addition, all nine of Fu Yu’s properties – including an investment property in Malaysia – are being recognised on its balance sheet at cost less accumulated depreciation.
Cheong says the recent takeover offer of PCI – the electronic components manufacturer – at attractive premium could lead to re-rating. On Jan 4, PCI announced it had received a takeover offer from Platinum at $1.33 per share, a premium of 60.1% over the volume weighted average price of the shares for the 12-month period up to Sept 17 2018.
“The valuation metrics of 5.5x TTM EV/EBITDA based on the offer price is 83% higher than Fu Yu’s 3.0x 2019F EV/EBITDA,” says Cheong.
For 2019, Fu Yu also offers a dividend yield of 8.5% while net cash forms 53% of its market cap.
As at 4.11pm, Fu Yu shares were trading at 20 cents.
