• We expect Venture Corp's 2020 earnings to be largely in line with our estimate of S$300m as sequential recovery continues into 4Q20 from further reopening of economies and good demand for customers’ essential products. However, we see three potential key risks for 2021:
  1. delay of new product launches due to weaker market sentiment,
  2. production disruption due to COVID-19 outbreak in Malaysia, and
  3. reduced demand for essential products linked to COVID-19.
• Maintain BUY on Venture Corp and target price of S$23.76.

Expect 2020 Earnings to be Largely in Line With Our Estimate of S$300m

• To recap, Venture Corp (SGX:V03)’s 9M20 earnings of S$211m forms around 70% of our full-year forecast. Our 4Q20 earnings forecast of S$89m (+11% q-o-q, -8% y-o-y) is expected to reflect sequential growth but decline on a y-o-y basis.
• The sequential recovery is expected to be driven by factors which impacted 3Q20 like the further reopening of economies and good demand for customers’ essential products.
• In addition, several key Venture Corp's customers reported a healthy set of 4Q20 results:
  • Broadcomm’s 4Q20 revenue grew 12% y-o-y;
  • Thermo Fisher’s 4Q20 revenue grew 54% y-o-y; and
  • Illumina’s 4Q20 revenue grew 20% q-o-q, flat y-o-y.

Potential Delay of Product Launches Due to Weaker Market Sentiment

• Venture Corp’s clients may delay new product launches into the later part of the year if market sentiment weakens. For instance, 4Q20 and 1Q21 saw a resurgence in the number of COVID-19 cases around the world, especially in US and EU, key markets of Venture Corp’s clients.

Risk of Disruption to Production Capacity

• Although the recently announced two-week movement control order (MCO) for eight states in Malaysia provides flexibility for essential services, such as manufacturing, to continue Venture Corp's employees test positive, it could lead to a temporary disruption to operations or capacity cuts at its factories. Venture Corp’s presence in Malaysia, which includes Johor and Penang (both of which fall within the MCO states), form 81% of its total site area.

Risk of Reduced Demand for Essential Products Linked to COVID-19

• For 2020, several of Venture Corp’s clients have benefitted from Thermo Fisher, whose full-year revenue grew 26% y-o-y and majority of the growth was driven by COVID-19-related testing equipment.
• From its 2021 revenue forecast of 9%, Thermo Fisher expects COVID-19-related testing to contribute 2% growth, while the base business contributes the remaining 7%.

Strong Balance Sheet and Good Dividends Provide Limit for Share Price Downside

• As of end-1H20, Venture Corp recorded US-listed peers which were mostly in net debt positions.
• More importantly, Venture Corp has consistently paid the same amount of dividends or better than in the preceding year. We expect a dividend of S$0.75 per share this year which translates into an attractive dividend yield of 3.9%.

Venture Corp - Valuation & Recommendation

• We maintain our earnings forecast for Venture Corp. Maintain BUY with PE-based target price of S$23.76, pegged to +1 standard deviation above its forward mean P/E, of 19.4x on 2021F earnings.
• At the current Venture Corp share price, the stock offers a dividend yield of 3.9%.

Source: UOB Kay Hian Research - 25 Feb 2021