The association is also asking for the board&rsquo s opinion on whether the company&rsquo s recent upturn in financial results will continue

 

THE Securities Investors Association (Singapore), or Sias, has asked precision plastics manufacturer Fu Yu Corporation&rsquo s board to substantiate the claim by the largest shareholder Victor Lim that the company&rsquo s independent directors (IDs) should be removed due to company performance.

 

In its questions Fu Yu&rsquo s board on Thursday (Jan 16), the association noted that IDs are not typically involved with managing the company.

 

It further asked if the board has actively engaged with Lim on Fu Yu&rsquo s strategic direction, as well as whether there have been disagreements between the board and the company&rsquo s management of its strategy.

 

Fu Yu&rsquo s IDs Christopher Huang and Royston Tan had expressed surprise that Lim, who holds a 29.45 per cent stake in the company, requisitioned for an extraordinary general meeting (EGM) on Jan 9 to have them removed.

 

Huang also said that the IDs could not &ldquo in good conscience, say that it is in the best interest (of the company) for him to be admitted as an executive director&rdquo , although he did not give any specific reasons for why the board declined his bid.

 

The Business Times understands that Lim has been a director of strategy at Fu Yu since 2021, but was not on the company&rsquo s board.

 

He has called for the appointment of Gilbert Rodrigues, Ralf Pilarczyk and Yang Zhenrong as IDs to replace them.

 

&ldquo In the event the IDs are removed at the proposed EGM, who will review the suitability of the ID candidates proposed by Mr Lim, as there will be no nominating committee to assess the board candidates proposed by Mr Lim?&rdquo Sias asked.

 

Tan is currently the chairman of the board&rsquo s nominating committee.

 

This comes after Fu Yu&rsquo s board rejected Lim&rsquo s bid for a board seat on Dec 26, 2024. Sias has asked the board&rsquo s nominating committee for its reasons for rejecting his request to join the board, as well as the justifications that he presented to join the board.

 

Sias also asked for the board&rsquo s opinion on whether the company&rsquo s recent upturn in financial performance would continue. 

 

In the nine months leading up to Sep 30, 2024, Fu Yu&rsquo s revenue rose 55.2 per cent to S$162 million, while its net loss narrowed to S$1.9 million, from S$5.8 million in the prior year.

 

Local fund management firm Pilgrim Partners Asia had earlier purchased a 29.8 per cent stake in Fu Yu from the company&rsquo s co-founders and placed it in a fund in January 2021.

 

Lim became the fund&rsquo s sole shareholder on Nov 22, 2024, and opted to wind it down on Dec 11, 2024. He had also applied to join the company&rsquo s board, the company said in a clarification notice on Dec 19, 2024.

The independent directors reiterate that they do not have any control over the day-to-day operations of the company 

 

PRECISION plastic components manufacturer Fu Yu Corporation&rsquo s independent directors (IDs) Royston Tan and Christopher Huang were surprised that substantial shareholder Victor Lim has requisitioned for an extraordinary general meeting (EGM) to have them replaced, they said on Monday (Jan 13).

 

In a bourse filing released last Thursday (Jan 9), Fu Yu : F13 0% announced that Lim had called for both Huang and Tan to be removed as directors of the company in the EGM.

 

Lim also called for the appointment of Gilbert Rodrigues, Ralf Pilarczyk and Yang Zhenrong as independent non-executive directors.

 

In his requisition notice, Lim said that substantial shareholder value had been erased since both Huang and Tan were elected to the board.

 

Tan and Huang were elected to the board as IDs on Jan 31, 2022, and Jul 19, 2021, respectively.

 

Tan, who is chairman of the board&rsquo s nominating committee, told The Business Times that the board had rejected Lim&rsquo s application to join the board on Dec 26. However, he declined to specify their reasons for doing so.

 

On Dec 19, the company issued a clarification notice about the status of Lim&rsquo s 29.8 per cent stake in the company.

 

It said that Lim, who had originally purchased a stake in the company from its co-founders in January 2021 through Pilgrim Partners Asia, had decided to wind down the fund and redeem his shares in-specie, of which he currently holds a 29.45 per cent stake.

 

In addition, the company noted that he had also applied to join the company&rsquo s board.

 

Huang added that as an ID, he would not bend to shareholder pressure, no matter how substantial their stake.

 

&ldquo We cannot, in good conscience, say that it is in the best interest (of the company) for him to be admitted as an executive director at this juncture,&rdquo he said, adding that he would leave it to the company to address why Lim was rejected.

 

Meanwhile, Tan said that he was surprised by the move to try and remove the company&rsquo s IDs for its performance, since a company&rsquo s financial performance is typically tied to the executive team&rsquo s performance.

 

&ldquo The IDs don&rsquo t get involved in the day-to-day execution of running the business. This is very, very clear,&rdquo he said.

 

He added that from a financial perspective, he felt that the company&rsquo s management team has done a &ldquo very good job&rdquo amid a difficult macroeconomic environment post-pandemic.

 

In the nine months leading up to Sep 30, 2024, the company posted a 55.2 per cent increase in revenue to S$162 million and a net loss of S$1.9 million, narrowing from a net loss of S$5.8 million a year earlier.

 

Huang said that as with any strategic reset, a company&rsquo s performance would likely follow a sort of &ldquo J curve&rdquo as its performance dips and the company recalibrates on a growth path.

 

&ldquo It&rsquo s up to the market to decide how they view the company&rsquo s trend to be,&rdquo he said.

 

In a bourse filing on Monday, Fu Yu said that the company and the board have appointed lawyers to advise on the requisition of the EGM.

 

Both the company and board also reiterated that Huang and Tan are IDs, and are not involved in the day-to-day operations of the company.

 

BT has reached out to Fu Yu to understand Lim&rsquo s role at the company, as well as the reason that he was declined a seat on the board.

 

The largest shareholder of manufacturer Fu Yu Corp is calling for an EGM to remove two out of the four company directors, citing its deteriorating performance.

 

Victor Lim Wei De, who holds 29.45% of Fu Yu shares, states in his requisition letter that the company' s earnings had dropped from $17.58 million in FY2021 to a loss of $10.11 million in FY2023. The share price has dropped from 33 cents in 2021 to 13 cents as of Jan 9. 

 

Lim wants to remove chairman Christopher Huang Junlin and another independent director Royston Tan Tong Loong, but not the other two directors, CEO David Seow Jun Hao and Daniel Poh Kai Ren.

 

All four directors were appointed to their roles in Fu Yu between 2021 and 2022.

 

In their place, Lim wants to appoint three independent directors. They are Gilbert L Rodrigues, Ralf Pilarczyk and Yang Zhenrong.

 

" A strategic reset of the company and reorganisation of the board will be required," says Lim in his requisition letter. 

 

Lim, according to Fu Yu, has been employed by the company since 2021 as director of strategy.

 

In its more recent 1HFY2024 ended June 2024, the company eked out earnings of $0.1 million, reversing from a loss of $3.9 million in the year earlier. Revenue in the same period was up 78% y-o-y to $126.7 million.

 

As indicated in its 9MFY2024 ended Sept 2024 business update, Fu Yu has improved its revenue by 55.2% to $162 million and eked out an operating profit of $0.8 million, versus an operating loss of $6.5 million.

 

According to Fu Yu' s Dec 19 filing with SGX, Lim previously held shares in the company via a fund but the fund has been wound down and Lim now holds the shares directly.

Precision plastics parts maker Fu Yu Corp has recorded a net loss of $1.9 million in 9MFY2024 ended September, after including forex losses and taxation, compared to a net loss of $5.8 million in the same period last year. 

 

This came on the back of a net loss of $3 from its manufacturing division, which was partially offset by the group&rsquo s supply chain management services division&rsquo s net profit of $1.1 million.

 

Meanwhile, the group recorded an operating profit of $0.8 million for 9MFY2024, reversing from an operating loss of $6.5 million in 9MFY2023. 

 

For the same period, revenue rose by 55.2% y-o-y to $162 million, driven by higher sales across the group&rsquo s manufacturing and supply chain solutions divisions. 

 

For 3QFY2024, the group&rsquo s revenue saw a 7.6% y-o-y increase to $35.7 million, due to improved performance from Fu Yu&rsquo s manufacturing business. Contributions from the group&rsquo s Singapore and Malaysia operations grew 13.7% and 31.8%, respectively, in 9MFY2024 to $33.3 million and $27.8 million, respectively. This was partially offset by lower sales from China. 

 

Similarly, gross profit from the group&rsquo s manufacturing segment saw a 15.5% y-o-y increase to $10.6 million in 9MFY2024, while gross profit margin for the segment stood at 12.4%, up from 11.6% a year ago. 

 

For its supply chain segment, the group recorded revenue contributions of $76.4 million, up from $25 million in 9MFY2023. This came on the back of higher demand amid a global economic recovery, says the group. 

 

Gross profit margin for the segment increased to $1.5 million in the same period from $0.3 million in 9MFY2023, while gross profit margin stood at 1.9%. 

 

Group-wide gross profit rose by 27.5% to $12.1 million in 9MFY2024, while gross profit margin for the group stood at 7.5%, mainly due to a change in revenue mix.

 

Before foreign exchange, the group&rsquo s ebitda stood at $6.4 million, up from $0.1 million in 9MFY2023, due to growth in the manufacturing segment.

 

Moving forward, the group says it will continue to execute its transformation strategies to upgrade its manufacturing capabilities, move up the value chain to provide higher-precision products, and expand its customer base into new emerging industries.

 

As at Sept 30, the group&rsquo s net cash stood at $55.8 million or 7.3 cents per share. 

 

David Seow, group CEO of Fu Yu, says: &ldquo Looking ahead, we will strive to secure new customers in the biomedical sector and maintain a healthy project pipeline. In response to macroeconomic headwinds and geopolitical headwinds, we will continue to implement our strategies for long-term transformation to diversify our customer base, particularly in the biomedical industry.&rdquo

Added capabilities enable it to value-add and engage new customers, as well as pursue further collaborations with existing customers

 

PRECISION plastic parts manufacturer Fu Yu Corp aims to increase sales from its biomedical segment to more than half of the group&rsquo s revenue within the next three to five years, up from the current 3 per cent, supported by the launch of its smart factory and new product design capabilities.

 

&ldquo The 3 per cent is evidence that it&rsquo s there,&rdquo said group chief executive officer David Seow. &ldquo We haven&rsquo t moved the needle yet, because for some of the capabilities that we&rsquo ve got since last year, it takes time. But the signs are there.&rdquo

 

The global biomedical devices market reportedly reached about US$600 billion in 2023, and is expected to grow 6 to 7 per cent annually, Seow said. It is &ldquo clearly a sunrise industry&rdquo , compared with Fu Yu&rsquo s other sectors, such as printing and imaging, consumer, automotive, and medical (where it produces casings), he added.

 

Biomedical equipment is harder to manufacture, making the barriers to entry and margins higher. The business is also stickier, with customers using the same product for &ldquo seven, 10, 15 years&rdquo after being trained to use them.

 

Creating capabilities

Fu Yu is planning to grow the more demanding segment with its recently opened smart factory in Tuas, which features advanced technologies, such as high-precision 3D printers.

 

The precision plastic parts producer is setting up its manufacturing execution system to enable performance monitoring, preventative maintenance, sustainability and traceability.

 

&ldquo These are the requirements that a lot of our new age, more modern customers need, because gone are the days where they just submit a purchase order, close (their) eyes, and then three months later, see whether it&rsquo s there,&rdquo said Seow.

 

Fu Yu has also been hiring talent with the technical capabilities in the biomedical field. Notably, it has established a new production introduction (NPI) team in Singapore.

 

Many medical original equipment manufacturers (OEMs) carry out research and development in Singapore, Seow said. Fu Yu&rsquo s team can engage them and propose cheaper, better materials, or those with shorter lead times, he said. It can also advise on designing for manufacturability.

 

&ldquo We used to be just a price taker&hellip just a build to print company,&rdquo he said. Its customers were those that tendered their designs and chose the lowest-cost manufacturers. &ldquo Now, our value proposition is very different because of the NPI team.&rdquo

 

OEMs are increasingly looking to outsource their design functions, as they want leaner operations, he added.

 

On top of new customers, the company is &ldquo knocking on the doors&rdquo of customers for which it is already an approved vendor, trying to go beyond making simple medical equipment case parts for them, to manufacturing high-precision parts.

 

While these customers&rsquo existing suppliers may be competition, &ldquo windows of opportunity&rdquo arise when there is a next iteration of a product, or when the previous provider underperforms.

 

Production can then be carried out in clean rooms, including in Fu Yu&rsquo s Malaysia and China facilities. 

 

Choppy contributions

Fu Yu operates six factories: one in Singapore, which functions as the &ldquo hub&rdquo , two in Malaysia and three in China, which are the &ldquo spokes&rdquo .

 

For the half year ended Jun 30, 2024, its revenue surged 78 per cent year on year to S$126.7 million, from S$71.2 million in H1 of the preceding year.

 

Of this, S$54.8 million came from the manufacturing business. Some S$72 million came from the &ldquo opportunistic&rdquo supply chain management business, where Fu Yu acts as a middleman for suppliers and buyers of commodities.

 

In the manufacturing segment, higher revenues were posted for Singapore and Malaysia &ndash up 6.6 per cent and 39.1 per cent respectively &ndash but performance in China weakened, down 20.4 per cent.

 

The consumer segment led growth in Singapore in H1 2024, but Seow expects that biomedical will be the main growth driver in future, given recent efforts.

 

Explaining the sharp improvement in the Malaysian operations, he noted that more corporations have relocated from China to Malaysia. Penang &ndash where one of Fu Yu&rsquo s facilities is located &ndash is a &ldquo very mature manufacturing hub&rdquo . The country also has relatively lower political risk in the region, while having lower costs than stable Singapore.

 

Seow also highlighted the country&rsquo s general macroeconomic recovery, with pick-ups in orders now following late 2022 and 2023&rsquo s over-inventory of medical products. The consumer segment has also been picking up.

 

But in China, the sluggish domestic economy has dragged business activity.

 

China conundrum

Beyond the uncertainty of China&rsquo s long-awaited economic recovery, the US-China tussle poses a threat. Upcoming elections in the US could also escalate trade tensions, resulting in further tariffs on China-made goods.

 

Fu Yu is taking a cautious &ldquo wait and see&rdquo approach in this market. But with the departure of international businesses, it is also pivoting to a China-for-China and China-for-Asia strategy.

 

&ldquo While we are growing our local Chinese customers, we have seen in the past that drop in orders from our international customers,&rdquo Seow said.

 

It has been courting domestic customers, but the long process leading up to final production means that the fruits of its labour have not yet been reflected in its financials.

 

He said it takes about nine months before any revenue is realised for consumer products. For biomedical products, which require regulatory checks, this can take up to two years.

 

Another headwind is supply chain problems due to the ongoing Russia-Ukraine war and the Middle East conflict. However, Seow is confident that Fu Yu&rsquo s centralised procurement in Singapore provides a global view, with opportunities to redistribute resources or seek new suppliers when shortages or freight issues occur.

 

Keeping confident

Despite some challenges, Fu Yu believes that the future is bright. The group recorded a net profit of S$72,000 in the first half of 2024, reversing from the previous year&rsquo s net loss of S$3.9 million.

 

In 2024 so far, the group managed to secure more new customers than in the year before. It has also identified India as a potential market, securing its first ever customer there recently.

 

The company has a young management team, in contrast to its founder-led industry peers that are likely to undergo leadership changes. Customers take comfort in knowing that the people they speak to now will be around for the next 15, 20, 30 years, said Seow.

 

&ldquo Before our time, there was a lot of rationalisation of factories or businesses, cutting all the loss-making factories and holding on to the profitable ones,&rdquo he added. &ldquo But they were not really growing the business. They were not improving or upgrading the capabilities.

 

&ldquo So right now we&rsquo ve done that hard work... We have a new value proposition.&rdquo

 

Precision plastics parts maker Fu Yu Corp has managed a turnaround for 1QYF2024, recording earnings of $5,200, versus a loss of $2.4 million in the year-earlier period.

 

Revenue in the same three months ended March was $78.9   million, double that of $36 million recorded year-earlier, as the company managed to win more contracts. 

 

Fu Yu has also announced some new key wins, including one to be the exclusive plastics supplier for a Singapore-based medical device maker.

 

&ldquo We have recorded an encouraging first quarter, as we not only reported higher revenue and a transition to a net profit from a net loss last year, but also secured promising new projects in the biomedical industry," says group CEO David Seow.

 

" These project wins reflect the early fruits of our strategic transformation," he adds.

 

According to Seow, the company is leveraging its diversified global supply chain to manage headwinds such as delayed shipment times and higher logistics costs due to the situation in the Middle East, ongoing US-China tensions, changes in the global supply chain and rising labour and energy costs. 

 

" Moving forward, we will focus our efforts on expanding our project pipeline, and executing our strategic initiatives to further our growth in the coming year," says Seow.

 

SINGAPORE startup myFirst has appointed Fu Yu Corporation : F13 0% as its exclusive contract manufacturer, both parties said in a joint statement on Thursday (Apr 4).

 

The startup is known for its kid-safe platform that allows children to socialise using its products, which include watchphones, cameras, earbuds, 3D pens, and headphones.

 

Fu Yu, which manufactures high-precision plastic products, will provide &ldquo a full suite of solutions&rdquo to manufacture and assemble myFirst&rsquo s products, supported by its smart factory in Tuas. It will begin mass production this month for the S$15 million contract. 

 

Depending on requirements, manufacturing components for myFirst can also take place across Fu Yu&rsquo s six facilities in Singapore, Malaysia, and China.

 

The partnership will help myFirst drive the major North American expansion of its kid-safe digital platform, following a pre-Series A funding round from Lynx Asia Partners and angel investors.

 

It plans to boost its number of locations to 20,000 from 4,000, including those owned by major retailers such as Walmart, Costco, and Best Buy. It already operates in 40 countries and previously received funding in 2022 from tech founders and executives from PatSnap, Google, Rainforest, TNB Aura and Zopim.

Both parties also plan to explore using bio-rated materials to manufacture certain components to enhance sustainability across the production line.

 

MyFirst&rsquo s co-founder and chief executive G-Jay Yong said: &ldquo Every time myFirst has expanded, we have faced a sudden surge in demand. We are globally available but the US is a big market and this partnership has given us the backing to be able to cater to this demand surge.&rdquo

 

Fu Yu group chief executive and executive director David Seow added: &ldquo Over the past year, Fu Yu has been tirelessly evolving, developing new production introduction capabilities to provide early-stage engagement and enhancing our capabilities with cutting-edge manufacturing techniques.&rdquo

Precision plastics manufacturer, Fu Yu Corp has reported losses of $10.1 million for its FY2023 ended Dec 31, 2023, down from FY2022&rsquo s earnings of $14.6 million.

 

This translates to a loss per share of 1.34 cents, from FY2022&rsquo s earnings per share (EPS) of 1.93 cents.

 

Meanwhile, the company&rsquo s FY2023 revenue of $190.4 million decreased by 20.7% y-o-y from $240.2 million in the year before, which it attributes to the weaker first half of 2023 amid economic uncertainty, geopolitical tensions and a higher interest rate environment. 

 

The majority of Fu Yu Corp&rsquo s incurred net loss stems from lower topline and higher labour and energy costs, expenses related to the development of its Smart Factory in Singapore, a foreign exchange (forex) loss of $0.5 million mainly due to the voluntary liquidation of its Fu Yu Moulding and Tooling subsidiary (FYSCS) in Shanghai, as well as the $2.7 million non-cash impairment of goodwill in connection with its investment in FYSCS. 

 

Gross profit also decreased by 64.6% y-o-y from $37.6 million in FY2022 to $13.3 million in FY2023

 

As such, no dividends have been recommended or declared as the company is in a loss-making position. 

 

Looking ahead, Fu Yu Corp is seeing gradual post-pandemic business recovery for tooling and plastics components across its three geographies, Singapore, Malaysia and China, particularly, in the medical and consumer sectors. It also expects momentum to build up further towards the second half of 2024. 

 

Its smart factory at 9 Tuas Drive 1 will be completed by April 2024, and will be one of Asia&rsquo s most advanced precision manufacturing facilities.

 

Despite volatility in the business environment, the company remains cautiously optimistic and expects higher contributions from its export tooling business, the bio-medical sector as well as from new customers. Together with the ongoing cost-containment efforts, and barring unforeseen circumstances, Fu Yu Corp expects the overall FY2024 financial performance to improve compared to FY2023. 

 

David Seow, CEO of Fu Yu, says: &ldquo It has been a challenging year for the manufacturers worldwide. To overcome these challenges and seize new opportunities we are implementing major initiatives to deliver sustainable long-term growth. With enhanced capabilities and maiden contributions from new revenues we expect our overall performance in FY2024 to exceed FY2023.&rdquo  

FU YU Corporation&rsquo s business update at the end of November, accompanied by a media briefing on the same day, was a positive surprise for the market.

 

Under new chief executive David Seow, Fu Yu : F13 +0.75% is implementing fresh initiatives to revitalise the company. Shareholders sent the stock up 3.3 per cent that same day.

 

It closed on Wednesday (Dec 13) at S$0.134, up 8.9 per cent since the announcement, giving the company a market capitalisation of S$101.4 million.

 

The market reaction offers a playbook for small-cap companies seeking to revive investor interest in their shares. A game plan, and the willingness to talk about it, is a good place to start.

 

One of Asia&rsquo s largest manufacturers of high-precision plastic parts and moulds, Fu Yu was incorporated in 1978 and made its debut on the mainboard of the Singapore Exchange (SGX) in 1995.

 

It has been a reliable performer, generating profits even during the pandemic years and dishing out regular dividends for close to a decade.

 

Still, the company was not innovating and growing as it could have. Over the past 10 years or so, its three co-founders &ndash Ching Heng Yang, Tam Wai and Ho Nee Kit &ndash had also sought to sell their shares and retire.

 

Shares of Fu Yu traded at as high as S$1.24 in 2004 &ndash more than treble its initial public offering (IPO) price of S$0.40.

 

For most of its history as a listed company, however, the counter has traded significantly below this level, at an average of S$0.27.

 

From its IPO on Jun 14, 1995, up to the end of December 2020 &ndash just before a new investor came on board &ndash Fu Yu posted total returns of 34.2 per cent.

 

In comparison, the benchmark Straits Times Index generated total returns of 102 per cent over the same period.

 

Unveiling a new chapter

While there are many possible reasons for this undervaluation, the management&rsquo s reticence in public would not have helped.

 

Potential investors have had little opportunity to hear about &ndash and buy into &ndash Fu Yu&rsquo s growth story.

 

That may be changing. Fu Yu&rsquo s board was reconstituted in January 2021 following the sale of a 29.8 per cent stake in the company for S$58.3 million to fund management firm Pilgrim Partners Asia.

 

At a media conference explaining the company&rsquo s updated strategies, the new CEO Seow said the company needed a new direction or it would be a &ldquo sitting duck&rdquo just waiting for the market to recover.

 

Seow believes Fu Yu has not sufficiently reinvested its earnings for growth, and was focused on extracting value for shareholders instead.

 

He sees an opportunity for the company to be a market disruptor if it deploys its balance sheet well. Fu Yu had net cash of S$56.7 million as at Sep 30.

 

&ldquo Because Covid happened, there was that reconfiguration of supply chains. Suddenly, all the manufacturing lines, which (relied on) permanent relationships, were being challenged,&rdquo Seow said, adding that geopolitics has also motivated manufacturers to diversify their supply sources.

 

Seow plans for Fu Yu to focus on its core competencies in tooling by hiring talent, as well as purchasing new equipment and software. Its tools are used in moulds that produce plastic parts for its customers.

 

In an industry typically satisfied with running fully depreciated machines that are 20 to 40 years old, such investments would help distance the company from its competitors by the quality and precision of its products.

 

&ldquo If you make a great tool, your moulding is very easy because all your parts come up great with no defects,&rdquo Seow said.

 

The improvements in quality will also allow the company to produce more biomedical parts. The company aims to increase the proportion of revenue it makes from biomedical products from less than 10 per cent today to at least 50 per cent in three years.

 

Seow said the company will also be exploring mergers and acquisitions that could bring more expertise along the manufacturing process in-house, thus providing customers with a more attractive one-stop shop.

 

Manufacturing growth opportunities

Shares of Fu Yu remain distant from their historical peak, but the renewed interest in the stock is a positive sign.

 

For other small-cap stocks looking to generate similar interest in their counters, there are a few lessons to be extracted.

 

It is critical for a company to have well-thought-out plans, and equally critical for the company to have a spokesperson who can communicate these plans to analysts and the media.

 

Also, shareholders need a narrative they can follow and to which they can hold the company accountable.

 

Manufacturing may have a reputation as a staid business with limited growth opportunities, but a growth mindset in management can have a positive impact.

 

Precision plastics manufacturer Fu Yu Corporation F13 0.72% is in the midst of a business transformation and the first fruits of its labour will begin to show next year, says CEO David Seow, who was given the task of revamping a company that a trio of co-founders had led before he was born.

 

In 2021, Ching Heng Yang, Tam Wai and Ho Nee Kit, having co-founded the company in 1978, chose to retire after selling a controlling stake of 29.8% stake for $58.3 million to local fund management firm Pilgrim Partners Asia.

 

Seow describes when he and his new management team first joined Fu Yu as &ldquo very interesting&rdquo times.

 

&ldquo We were very young compared to the people that we took over, and a lot of us came from very diverse backgrounds,&rdquo says Seow, who was 36 years old then and whose working experience up till then was mainly with French bank Societe-Generale in structured trading and commodity finance.

 

Having inherited an ageing business in what he deems a sunset industry, Seow quickly looked to identify new business segments to diversify into and gain a competitive edge.

 

&ldquo We' re not just taking over the business and running it as is, growing based on its core values. We' re disrupting and doing everything a little bit differently but smartly. We' re looking abroad, identifying where the business is, where our best opportunities are, where the gap in the market is that our competitors are not capturing.&rdquo says Seow.

 

New processes, new equipment

With this direction in mind, Fu Yu, under Seow, embarked on several initiatives across different levels.

 

First and foremost, it began to upgrade its lineup of manufacturing and moulding machines to ensure it met modern-day standards in precision and materials &mdash moving &ldquo back to the basics&rdquo of the business.

 

According to Seow, the company started as a tool shop, but in the preceding decade, before Pilgrim Asia assumed control, tooling was no longer the priority. &ldquo Within the industry, we see that tooling is at the heart of moulding if you make a great tool, your moulding is very easy because all your parts come out great, and you don' t have to spend additional money and time to amend any defects.&rdquo

 

It is costly to deploy new tooling technologies, but given that Fu Yu was lagging behind some of the competition, the decision to invest in updated technologies was necessary. Knowing that the best equipment is of little use without engineering talent, Seow expanded the precision engineering team from just over 20 to 35, spending considerable time and effort searching and poaching engineers he unabashedly calls &ldquo best in class&rdquo in the market. &ldquo With them, we can now do scientific modelling and reverse engineering, which we couldn' t do before,&rdquo says the CEO.

 

Getting the house in order is but half the job done. Seow is focused on raising what he calls &ldquo client stickiness&rdquo as well, with reaching out to customers early and helping to develop prototypes together as one way of doing so. &ldquo Instead of waiting for customers to come to us with a design in mind for metal printing, we now can approach customers and offer them help with design besides reverse engineering.&rdquo

 

In December 2022, Fu Yu completed the construction of its smart factory in Singapore, which it claims is one of Asia&rsquo s most advanced in precision manufacturing. Using a high level of automation across its different processes via the $22 million factory, Fu Yu can now manufacture parts with a precision of down to just two to five microns, from 10 to 20 microns previously. As of September, Fu Yu can increase its in-house moulding from 70% to 90% y-o-y.

 

According to Seow, the manufacturing process is monitored &lsquo live&rsquo , and on top of detecting kinks, the software can help identify where hiccups might occur, alerting the preventive maintenance crew to swoop in.

 

Pivoting to new areas

Fu Yu&rsquo s new factory is ready at the right time as its capabilities meet the precise manufacturing specifications required by potential customers of the biomedical and sciences sector, which the company is eyeing.

 

In February this year, Fu Yu Biomedical was set up to produce biomedical devices such as endoscopes, valves, syringes and in-vitro diagnostics devices in what Fu Yu says is a market worth US$750 billion ($999 billion). &ldquo We see a lot of biomedical companies coming to Asia and Singapore, where they are shifting their attention towards high-precision medical devices in three main areas: therapeutics, procedural and general devices,&rdquo explains Seow.

 

Fu Yu is adding more cleanroom facilities by the end of the coming FY2024 to better serve these customers. As part of its focus on this sector, the company has also signed strategic partnerships with Japanese-based industrial rubber product manufacturer Fujikura Composites and Chinese-based smart manufacturer JLK Technologies. Seow aims to generate at least half of Fu Yu&rsquo s turnover from this sector in three years, from less than 10%.

 

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As part of the wider push by countries and companies to be more sustainable, Fu Yu is doing its part too, by laying down a target to reduce its scope two emissions by 30% by 2030. The company is installing solar panels across its facilities in Singapore and Malaysia, which Seow says has helped reduce electricity consumption by 20% to 22%.

 

The company is also replacing its hydraulically-powered machines with electric ones to reduce oil consumption and making use of resin powder from recycled materials and sugar cane bio resin to produce disposables, consumables and packaging caps. It is also exploring ways to convert traditional polymer resins from hydrocarbons or oil to eco-friendly resins in the products that we manufacture for our customers. Additionally, Fu Yu&rsquo s recently built smart factory will allow customers to track the carbon footprint of the fabrication of their products, says Seow.

 

The difficulties of transformation

Despite Seow&rsquo s positive outlook on Fu Yu&rsquo s evolution, he recognises the difficulties of inheriting an old business. In its 3QFY2023 ended September business update, Fu Yu&rsquo s revenue dropped by 7.5% y-o-y to $33.1 million. This brings 9MFY2023 revenue to $104.3 million, down 34% y-o-y.

 

No thanks to an unfavourable sales mix, Fu Yu&rsquo s gross profit margin for 9MFY2023 was just 1.1%, down from 4.8% in 9MFY2022. As a result, the company bled $5.8 million in 9MFY2023, versus earnings of $15.6 million in 9MFY2022.

 

Seow explains: &ldquo I think that the main issue has been the lack of business. From existing customers, volumes have dropped, and the company couldn' t gain new customers or new projects in the last few years. The good thing is that we don' t have much debt, and our net cash position remains strong.&rdquo

 

The company&rsquo s share price movement has somewhat reflected the poorer results. As at Nov 29, Fu Yu shares closed at 14 cents, down 36.8% year to date. Back in Jan 2021, Pilgrim Partners paid 26 cents per share to buy over the controlling stake in Fu Yu from the three co-founders. As at Sept 30, Fu Yu&rsquo s net asset value was 18.5 cents per share, which included net cash of 7.5 cents or $56.7 million.

 

Turning around the company won&rsquo t be a smooth sailing task. Even as Fu Yu eyes the biomedical segment as a new growth area, the company reported lower revenue from this segment in its 9MFY2023 update, as the end of the pandemic lowered demand for certain medical products.

 

According to Seow, Fu Yu&rsquo s customers had been dialling back their demand forecasts, as they face uncertainty in their own demand.

 

Seow anticipates a bottoming out and subsequent upward trend next year. To this, the CEO is forward-looking and untroubled.

 

&ldquo We can' t control their business decisions, but what we can control is getting the new business into these sub-segments, and that' s really the focus. If we didn' t have this overall revamp strategy, I would say that we are sitting ducks, waiting for the market to

recover. But we' ve identified new customers, and with the team that we have, we have good inroads into the new phase.&rdquo

 

Fu Yu is also looking into acquiring other businesses as part of its strategy to solidify its position as a manufacturing &ldquo one-stop shop&rdquo for its clients. For example, In 2021, it acquired Avantgarde Enterprise

to form Fu Yu Supply Chain Solutions, to centralise the procurement of resins and eke out cost savings.

 

&ldquo In future, the kind of M& As we will be looking at are those in the value chain and supply chain. Looking at the parts we manufacture, if there are things that we can house under one roof and do it ourselves, within the group, that will be key,&rdquo says Seow.

 

Although his vision for Fu Yu&rsquo s complete transformation is poised to be completed in the next three to five years, the CEO is sure that the company will already start seeing small wins in FY2024, driven by its higher revenue from its smart factory, recovery from pandemic-related stockpiling issues and higher margins in from its favoured biomedical and science segment.

 

Despite the company&rsquo s focus on tangible strategies, Seow says that he believes open communication and a healthy culture will help achieve the goals set. &ldquo You can have a strategy, but culture eats strategy for breakfast. So at the management level, my team and I make sure to drive culture,&rdquo he says.

PRECISION plastic components manufacturer Fu Yu Corp is projecting a brighter outlook for FY2024 with the launch of new transformation strategies to &ldquo build a much stronger business foundation, open up new business opportunities and enhance shareholder value&rdquo .

 

The group on Tuesday (Nov 28) said it expected China&rsquo s economic slowdown, rising interest rates and geopolitical tensions to &ldquo pose challenges&rdquo for FY2023.

 

For the nine months ended Sep 30, Fu Yu reported a 34 per cent decline in revenue to S$104 million from S$157.6 million the year prior. Gross profit fell 67.8 per cent on the year to S$9.5 million from S$29.5 million previously, led by lower profit contributions from the manufacturing business.

 

Fu Yu group chief executive David Seow said its customers typically give one, three and six-month forecasts for future orders. Over the last year, customers have revised their forecasts downwards as they continued to hold large stockpiles of inventory post-pandemic.

 

&ldquo We saw that trend happen for the last year but it seems to have improved so we are hopeful that come next year, things will be better,&rdquo he said.

 

Its audited results for the full year are expected to be released in late February 2024.

 

Going forward, Fu Yu anticipates its FY2024 financial performance to improve on expectations of a higher topline driven by the launch of its newly established &ldquo Smart Factory&rdquo facility along Tuas Drive. This involved additional capital expenditure of S$22 million.

 

Seow said that capital expenditure improvements will start to bear fruit next year as the company has upgraded its machinery and hired more engineers to manufacture products within the two to five micron precision range. This is an improvement over the 10 to 20 micron range that the company could manage previously.

 

The upgrade will allow the company to manufacture smaller components, such as the plastic lenses that go over the sensors of electric cars and other biomedical products.

 

Seow is particularly bullish on the biomedical sector, which will involve the manufacturing of products such as syringes and endoscopes.

 

Although the sector currently accounts for less than 10 per cent of the company&rsquo s revenue, he expects it to contribute to at least half of its revenue in three years&rsquo time.

 

Because the biomedical sector has stringent requirements and very high entry barriers, he believes that the company will be able to find a niche for itself in the space.

 

Higher margins in the biomedical segment, advances in smart manufacturing, and group-wide efficiencies are also believed to improve FY2024 gross profit margin compared to the 9 per cent margin achieved in H1 of FY2023.

 

Fu Yu also projects revenue contribution from its export tooling segment &ndash where revenue contributions will commence from FY2024 &ndash to &ldquo rise significantly&rdquo .

 

Fu Yu&rsquo s announcement follows the completion of its strategic review headed by Seow.

 

Seow was appointed after the board was reconstituted in 2021, following Pilgrim Partners Asia&rsquo s acquisition of a 29.8 per cent stake in the company.

 

In its Nov 28 filing, Fu Yu said that its board had outlined five major strategies to &ldquo address the fresh challenges and opportunities&rdquo post-Covid with its recent completion of the company&rsquo s strategic review.

 

The first is to place a back-to-back emphasis on the design and manufacturing of mould capabilities, as well as improvements to group-wide efficiencies related to its Smart Factory as a hub to support plastics manufacturing.

 

Secondly, the company intends to target higher-precision tooling and components for the bio-medical and life science industries while enlarging its geographic and sectoral market reach.

 

The third strategy is to position the company to help customers improve their sustainability efforts and reduce greenhouse gas emissions.

 

This will be accomplished through initiatives such as the use of renewable energy, alternative raw materials, additive manufacturing technologies, and data capture of carbon reduction throughout the manufacturing process.

 

Fu Yu&rsquo s fourth strategy is to optimise its manufacturing processes, shorten lead times, and improve cost efficiencies by engaging with its customers early at the design phase, and integrating product development.

 

Lastly, the group said it aimed to increase shareholder value by forging alliances and collaboration globally to raise Fu Yu&rsquo s profile as it explores merger and acquisition opportunities.

 

Seow said: &ldquo We strive to be that one-stop shop &ndash so rather than have the customer go and look for his five suppliers himself, we will find partners to work with in the metals, rubber, electronics industries and then we try to do everything for our customer.&rdquo

 

He added that the company&rsquo s strong balance sheet allows it to pursue these different opportunities despite the current interest rate environment. The company was in a net cash position of S$56.7 million as at Sep 30, 2023.