• Maintain BUY, new SGD15.40 TP from SGD16.46, 13% upside, c.5% yield. We stay positive on Venture Corp on its recovery into FY25 despite 3Q24 net profit trailing our estimates. 3Q24 was affected by soft customer demand, which delays our recovery expectations and build-up of customer orders to happen from 2H24 into FY25. We trim earnings and TP, but maintain our call in anticipation of a FY25F earnings recovery. Our TP is based on 16x FY25F earnings.

• 3Q24 slightly below. 3Q24’s revenue was SGD690m (-4% QoQ, -2% YoY) while net profit came in at SGD61m (-5% QoQ, -4% YoY), slightly below expectations. Both revenue and earnings were dragged by soft demand from the life science, lifestyle consumer and test & measurement instrumentation domains, offset by better networking & communications and semiconductorrelated equipment domains. Net margin was largely in line at 8.8%. Management has now downgraded its previous revenue guidance for 2H24 from a stronger second half vs 1H24 to a revenue level comparable to the 1H24. This is largely due to softer demand from the life science domain, which is seeing demand constraint. Net cash remains unchanged at SGD1.2bn from 2Q24 (+33% YoY).

• Lower FY24F-26F earnings by 11%, 7%, and 7%. As 3Q24’s revenue and net profit came in below estimates, we lower our FY24F-26F earnings by 11%, 7%, and 7%. In addition, management is now guiding for revenue in 2H24 to be similar to 1H24’s as opposed to our anticipation of a stronger 2H24 vs 1H24. As 2H24 is expected to be similar to 1H24, we lower our FY24F revenue – VMS is now expected to post a c.7% revenue decline YoY. This results in an earnings cut of 11% for FY24’s estimate. We do however forecast a recovery in FY25 and have imputed a lower magnitude of earnings cuts for FY25 and FY26. Our earnings forecasts for FY25-26 is consequently lowered by 7% each in view of a recovery kicking-in in FY25.

• BUY on positive outlook, compelling valuations. We continue to like VMS for its strong net cash balance sheet, positioning for a FY25F earnings recovery, consistent DPS payout, attractive dividend yield, share buyback initiative, and valuation below historical mean. Growth is driven by new customers, new product introductions or NPIs for domains such as life science and artificial intelligence or AI data centre-related segments, leveraging on design capability, strong supply chain, and focus on high-value solutions.

• Downside risks to our forecasts include earnings downside on a weaker-orlater-than expected recovery in customer orders and demand.

• ESG. As VMS’s ESG score is 3.0 out of 4 – below our 3.1 country median – we apply a 2% discount to our intrinsic value.

Source: RHB Securities Research - 12 Nov 2024