FU YU CORPORATION: Trading At Less Than Its Cash Value

Sign of Value or Trap?

With such a strong balance sheet, you wonder why the company is trading at a massive discount to its worth.

One main reason is due to its volatile business nature, which has seen the gross profit margin for its core business going up and down over the past few years.

The business has also been suffering net losses from 2006 to 2009 as well as in 2011. The company started to turn profitable only from 2012 onwards. Obviously, this is a turnaround play but we still need to see if it can sustain the profits.

Despite the massive cash on the book, the company has not paid dividends to shareholders since 2007.

My guess is probably in view of the recent losses and volatility, the management wants to wait it out until profitability is sustained before resuming the dividend payout. Nevertheless, the key is to look out for the margin of the business.

In terms of cashflow, the company seems to operate in a competitive industry where it needs to spend quite a bit of cash to ramp up on capital expenditure. A quick look at the PPE (property, plant and equipment) figures will show how much equipment they are using to operate the business.

Return on assets doesn’t look extremely fantastic; it's relatively reasonable given the industry it is in.

This is a stock on my watchlist. I'll be watching out for news regarding project orders and margins.