Beat on Demand and Margin Resilience
- Venture Corp (SGX:V03)'s 1H22 PATMI of S$174.3m (+24% y-o-y) reached 49% of our and street estimates (1H typically accounts for 45-47%). This was driven by:
- improved supply;
- strong demand; and
- margin resilience.
- We now base our target price on FY23E P/E (from FY22E) on an unchanged multiple of 17.2x. As such, our target price for Venture Corp rises to S$22.90.
- We believe our thesis of Venture Corp being a late-cycle beneficiary is playing out, given broad-based demand strength, which we expect to continue in 2H22. BUY.
Margin Resilience Despite Inflationary Pressure
- Venture Corp's 2Q22 revenue rose 21.6% y-o-y to S$906.8m, bringing 1H22 revenue to S$1.8b (+25.4%). All 7 domains registered growth.
- 2Q22 PBT margin of 12.2% (+0.7% q-o-q, +0.6% y-o-y) expanded despite inflation pressure due to productivity gains and differentiating abilities to value add to customers amid challenging conditions.
- Inventory rose by ~S$200m to S$1.25b to support customer fulfilment, although management aspires to improve working capital if the supply situation allows for it. Receivables and payables were stable h-o-h.
Demand to be Sustained in 2H22
- Venture Corp characterises the current environment as one of “supply lagging demand”, and expects 2H22 demand to be sustained h-o-h. Resilience is broad-based, particularly in life science & genomics, healthcare & wellness, networking & communication, test & measurement and process & test equipment in semiconductor technology.
Risks
- Despite the beat, our forecasts are unchanged, reflecting our conservative stance in view of an environment prone to risks, such as:
- softening demand;
- unforeseen supply problems; and
- exogenous disruptions.
- Amid the global economic slowdown, the top 2023 risk is if orders decline, in our view.
Source: Maybank Research - 7 Aug 2022
