Venture Corp - Remains on Track for Growth

Date: 01/07/2022

Source  :  UOB KayHian
Stock  :  Venture       Price Target  :  22.80      |      Price Call  :  BUY
        Last Price  :  17.45      |      Upside/Downside  :  +5.35 (30.66%)

  • Venture Corp continues to see healthy near-term demand from majority of its customers and has an experienced task force to manage the recurring component shortages. Also, its strong R&D capabilities have enabled it to redesign products to reduce dependency on parts that are in shortage.
  • Despite the higher inflationary environment, Venture Corp strives to maintain its net margin in the historical range of 9-10%.
  • Maintain BUY.

Venture Corp Continues to See Healthy Near-term Demand From Customers

  • Venture Corporation (SGX:V03) continues to see healthy demand from most of its customers recently. Despite the increasingly uncertain environment, Venture Corp should be able to deliver relatively resilient performance given its highly diversified customer base across seven technology domains.
  • In addition, most of Venture Corp’s customers are in industrial segments such as life science, medical and testing, which are less sensitive to consumer sentiment. Customers are still looking to launch new products to capture more market share.
  • However, in the longer term, some of its customers are turning more cautious due to the increasingly uncertain macro environment.

Proactive Management and Differentiating Capabilities Help Venture Corp Overcome Supply Chain Disruptions

  • Venture Corp continues to see component shortages and expects these shortages to ease in 2023. However, Venture Corp does not expect any major disruptions to its production as it has several initiatives to overcome supply chain disruptions, which include:
    1. redesigning products to reduce dependency on parts that are in shortage,
    2. working with customers to obtain a longer order forecast for better procurement and production planning, and
    3. increasing stockpiles of inventories and sharing the working capital burden with customers.
  • Combined with its strong design and R&D capabilities, Venture Corp is able to provide unique solutions to win market share and clients that are of high quality amid this uncertain environment.
  • In addition, Venture Corp is sourcing its components globally and has recently started to see an improvement in the supply of semiconductor chips in China as more local manufacturers are manufacturing their own chips to overcome the supply shortage issues, risk of sanctions and tariffs by the US.

Targets to Maintain Net Margin

  • Despite the inflationary environment of rising cost of labour and raw materials, Venture Corp aims to maintain a net margin of 9-10%, consistent with its historical trend as it is confident in its ability to manage costs, negotiate higher prices with customers and provide strong value-add to its customers. In addition, Venture Corp is able to source labour from a diversified range of countries given its established presence in Malaysia.
  • Venture Corp remains positive on its long-term growth as it continues to engage and collaborate with successful and innovative customers in various high-growth, fast expanding market segments.

Positive Signal From Recent Share Purchases of Executive Chairman

  • On 8 Nov 21, Mr Wong Ngit Leong, the Executive Chairman and largest shareholder of Venture Corp, acquired 200,000 shares at S$18.73/share. Previously, his acquisition of 566,300 shares at an average price of S$14.45/share from Jul-Sep 17 turned out to be a strong positive signal as Venture Corp's share price hit an all-time high of S$29.50 in Apr 18.

Limited Share Price Downside Due to Venture Corp's Strong Balance Sheet and Good Dividends

  • As of end-1Q22, Venture Corp had net cash of S$815m (accounting for about 15% of its current market cap) and led the pack of 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 that in the preceding years.

Positive Guidance of Venture Corp's Key Customers

  • Broadcomm: Expects 1Q22 revenue growth of 14% y-o-y.
  • NCR: 2022 guidance of 12-15% y-o-y revenue growth and 27-39% y-o-y EPS growth.
  • Agilent: 2022 guidance of 7% y-o-y revenue and EPS growth.
  • Fortive: Expects 2022 revenue growth of 7% y-o-y.
  • Keysight: Expects 2022 revenue growth of 5% y-o-y.
  • Illumina: Expects 2022 revenue growth of 14-16% y-o-y.
  • Waters: Expects 2022 revenue growth of 6% y-o-y.
  • Philip Morris: Expects 2022 revenue growth of 4-6% y-o-y and EPS growth of 8-11%.

Venture Corp - Valuation & Recommendation

  • We maintain our earnings forecasts for Venture Corp. Maintain BUY rating on Venture Corp with target price of S$22.80, pegged at +1 standard deviation above its forward mean P/E, of 19.5x on 2022F earnings.
  • Currently, Venture Corp offers an attractive dividend yield of 4.7%.

Source: UOB Kay Hian Research - 1 Jul 2022

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