• 1H17 exceeded expectations
• Margins still expanding
• Still in a growth phase

1H17 PATMI Surged 50% to S$118m

Venture Corporation Ltd (VMS) posted yet another quarter of strong results as 2Q17 revenue increased 48.3% YoY to S$1.01b on the back of diversified customer base and continuing strong execution of customers’ programmes launched in prior quarters. In-line with revenue growth, 2Q17 operating expenses rose 46.8% YoY to S$931.2m, attributable mainly to increase in changes in finished goods and work-inprogress, and raw materials used, as well as employee benefits expense. Consequently, 2Q17 PBT and PATMI jumped 63.7% and 61.0% YoY to S$84.5m and S$69.8m, respectively.

For 1H17, VMS’ PATMI, which formed 57.3% of our FY17 forecasts, rose 49.5% YoY to S$118.4m on the back of a 41.3% growth in revenue to S$1.86b, on similar reasons as 2Q17. VMS’ 1H17 PBT and net margins improved by 0.6ppt and 0.4ppt to 7.8% and 6.4%, respectively, driven mainly by: 1) management’s impressive execution of its strategy to pursue value creation for its customers, and 2) continuous efforts to increase productivity and efficiency.

Potential for Further Growth

Looking ahead, as VMS makes progress on its strategy of value creation for its customers by engaging in research and development (R&D) work alongside its customers, we expect VMS to continue to capture additional opportunities (e.g. new programmes across its existing customer base, new customers acquired etc.) to further grow its revenue. Coupled with its lean and efficient manufacturing capabilities as well as strong engineering bench strength, we expect margins to expand further alongside revenue growth.

We remain positive over the long-term outlook of VMS, supported by its solid balance sheet, stable cash flow, and steady earnings growth momentum. Given its strong results and net cash position, we also see much room for VMS to raise its dividend, which has been S$0.50/year since FY08.

Reiterate BUY on Higher FV of S$14.80

On above expectations 1H17, we are raising our FY17F/FY18F PATMI by 13%/17%, respectively. Consequently, our DCF-derived FV increases from S$13.00 to S$14.80. Reiterate BUY on VMS, supported by a decent forward dividend yield of 4.3%.

Source: OCBC Research - 7 Aug 2017