• FY14 results within expectations
• Sustainable margins key for growth
• Raise FV; maintain BUY

Growth momentum continued into FY14

We continue to see steady growth for Venture Corp (VMS) as it reported a 3.5% YoY growth in its 4Q14 PATMI to S$39.3m on the back of an 8.3% increase in revenue to S$674.7m. For FY14, revenue rose 5.8% to S$2465.5m while PATMI improved 6.6% to S$139.8m. All product segments except for PC & Data Storage achieved top-line growth, with Test & Measurement/Medical & Life Science/Others (TMO) being the main growth driver as it recorded 22.8% YoY jump in revenue in FY14. VMS’ FY14 PBT margin was 0.3ppt higher at 6.3% while net margin was 5.7% (FY13: 5.6%). Net margin was impacted by the higher tax expense due to changes in tax incentives. Going forward, we expect tax rate to normalize at 10% each year, at least in the next two years. FY14 results came in within our expectations as revenue and PATMI formed 102.0% and 100.1% of our forecasts.

Expects steady growth with sustainable margins

We believe VMS will continue its growth momentum even as management cautioned against the slowing Europe economy given the following factors: 1) VMS has a diversified customer base with more than 100 customers, which help reduces concentrated exposure to the European market; 2) strengthening of USD against SGD helps but note that effect is likely to be partially offset by higher costs in Asia (e.g. higher minimum wage) and weaker Euro against SGD; 3) we believe VMS is able to improve its margins by providing value-adding services such as more design and research works on new products for customers, and lastly; 4) broadbased revenue growth with TMO segment being the key driver going forward, and we also expect higher contributions from its life science customers to command higher margins as well.

Raise FV; maintain BUY

As we incorporate FY14 results, VMS’ outlook and introduce FY16 forecasts, we bump up our FY15 revenue projection by 1.7% while keeping our PATMI forecast largely unchanged as our previous assumption for PBT margin was slightly too optimistic. Rolling-forward our valuation to 15x FY15F P/E, we raise our FV from S$8.04 to S$8.41. Maintain BUY, supported by an attractive FY15F dividend yield of 6.2%.

Source: OCBC Research - 2 Mar 2015