• ~90% revenue denominated in USD
• Weak MYR also positive for earnings
• Reiterate BUY

USD strength may boost revenue

8 Nov 2016 was yet another day since Brexit that shocked the world as U.S. chose Trump to be their next president after Obama, despite the polls pointing towards a Clinton victory. While the market initially expected the greenback to weaken under Trump given his protectionist trade policy proposals, the opposite happened – the USD strengthened against its major peers, and since 8 Nov, appreciated ~3.4% against the SGD to 1.4335 on 30 Nov. Based on Bloomberg consensus forecast, the USD is expected to further strengthen against the SGD to 1.45 in 2017. According to forecasts by OCBC Treasury Research and Strategy (as at 31 Oct), the USD is also expected to slightly appreciate further against the SGD to hit 1.4367 by Sep 17. In our view, Venture Corporation Ltd (VMS) will be a beneficiary of such USD strength, with ~90% of its revenue denominated in USD. This could further boost its sales should the strength in the USD sustain.

Weak MYR may lift earnings

In addition to the potential boost in revenue due to stronger USD, we believe VMS may at the same time benefit from weakening of MYR against SGD. As the 1MDB saga draws over a longer period, and coupled with Trump’s anti-TPP (Trans-Pacific Partnership) stance, the MYR has since 8 Nov depreciated against the SGD by ~3.4% to 0.3208 (inverse: 3.11721) till 30 Nov. While almost all of VMS raw materials and consumables are denominated in USD, ~60% of its manufacturing operations are done in Malaysia (remaining in Singapore). Hence, we believe if the weakness of MYR against SGD persists, VMS may benefit from lower operating expenses, and could potentially see some lift in earnings as a result.

Supported by attractive ~5.1% forward dividend yield

All said, due to volatility of FX movements, we prefer to keep our forecasts unchanged. On positive fundamental growth, solid balance sheet and attractive dividend yield, reiterate BUY on VMS with an unchanged FV of S$10.36.

Source: OCBC Research - 1 Dec 2016