• Venture Corp (SGX:V03) remains one of the bright spots among Singapore tech stocks amid a challenging environment. Management anticipates demand to remain unabated in 2H22.
• However, we conservatively expect margins to come under pressure when new orders are negotiated. As a result, we revise down our FY22 & 23E earnings forecast for Venture Corp by 3% each and reduce our target price for Venture Corp to S$19.55 from S$22.90, based on a lower 16x (from 19x) FY22E P/E, as tech stocks around the world have been de-rated in recent few months and valuations have come off sharply.

Demand Still Robust, But Margins Might be Reduced

• With the economic environment becoming more challenging week by week, we expect Venture Corp's margins to come slightly under pressure as new orders are being negotiated, especially if a recession hits.
• Venture Corp still sees strong demand for the rest of 2022 across its customer base, especially in the life science & genomics, healthcare & wellness, networking & communications and process & test equipment in the semiconductor space.

Attractive Yield of 4.4%

• Refer to Venture Corp's Dividend History. Venture Corp's management declared a 1H22 dividend of S$0.25 per share. We expect the final dividend to be S$0.50 per share, same as previous years, representing an attractive yield of 4.4% for FY22E.

Moving Into Higher-margin Products

• Venture Corp will be aiming to move towards higher-margin products, focusing on several technology domains of the future that would yield higher margins than its existing products. It also aims to ramp up business in these areas over the next 5-10 years.
• Despite expecting margins to be under pressure amid rising costs, Venture Corp has shown it has ridden these challenges well, which also highlights its strong customer ties as it can pass on higher costs to clients and remain one of our top picks in the Singapore Tech space.

Source: Maybank Research - 7 Oct 2022