• 7.5% YoY growth in 2Q15 PATMI
• Expects steady growth to sustain
• 6.2% FY15F dividend yield; reiterate BUY

Higher tax expense continues to show in 2Q15

Venture Corporation Limited (VMS) reported a set of in-line 2Q15 results as revenue recorded a strong 10.0% YoY growth to S$661.0m, with growth across most of its segments as it saw higher shipment and strengthening USD against SGD. 2Q15 PATMI rose 7.5% YoY to S$36.1m but saw its net margin declined 0.1 ppt to 5.5% as tax expense jumped 65.9% to S$6.2m due to changes in sales mix towards products that do not enjoy as much tax incentives granted to VMS.

As much effort are put into cost management and driving productivity improvement, VMS’ 2Q15 PBT margin rose 0.2 ppt YoY to 6.4%. For 1H15, VMS’ PATMI, which formed 44.5% of our FY15 forecasts, grew 6.7% YoY to S$68.6m on the back of a 6.5% increase in revenue to 1.27b. We expect 2H15 to show more consistent YoY growth across both quarters.

Expects life sciences segment to be key growth driver

1H15 saw steady YoY growth across all the business segments of VMS with the exception of Printing & Imaging (P&I) segment, which is within our expectations. We expect this trend to continue and as seen in 1H15, with VMS’ Test & Measurement, Medical & Life Science and Other (TMO) segment in the front-seat driving growth ahead.

Particularly, we expect its life science segment, where many of the new customers acquired over the past few years falls in this segment, to see higher contributions as VMS engage more with them. Also, margins in this segment are likely to be higher with more valueadding services.

While no large upswing expected, we believe VMS will be able to sustain steady revenue growth and possibly better gross (more value-adding work) and PBT margins (cost management, productivity gains and improving efficiency) going forward. Venture’s diversified customer base with most serving globally is another positive factor with the uncertain macroenvironment outlook.

Reiterate BUY, supported by 6.2% current dividend yield

While results were largely in-line, we further increase our effective tax rate assumption to be conservative, which lowers our FY15/16F PATMI by 1.7% each. Rolling-forward to 15x blended FY15/16F PER, our FV increase from S$8.41 to S$8.62. Reiterate BUY, supported by a decent current dividend yield of 6.2%.

Source: OCBC Research - 6 Aug 2015