• Strong margins
• Building ecosystems, not products
• FV of S$20.89

Results Beat

Venture Corporation Ltd’s (Venture) 1Q19 results came in above our expectations. Revenue rose 8.5% YoY to S$928.8m, due to broad-based growth registered across the group’s technology domains and customers’ new product introductions. This continues from the V-shape top-line recovery that we have expected post- 3Q18.

Research and development (R&D) expense was light in 1Q19, coming in at S$7.2m, which represents a drop of 52.2% YoY. We suspect this is due to a timing issue, with a lack of milestone recognitions in 1Q19. Core PATMI came in at S$91.0m, which comprised 23.2% of our full-year forecast.

Since 2006 – 2018 (excluding 2008/2009), 1Q constituted 21.1% of full-year core PATMI on average. Hence, we deem this set of results a beat. Core PATMI margin came in at 9.8%, which is a 1Q record for the group.

Hunting for New Business

2Q19 could be impacted by customer product transitions as well as general cautiousness given the ongoing Sino-US trade tensions. However, we believe that on a full-year basis, these headwinds should be more than offset by scheduled customers’ new product launches in 2H19, as well as contribution from newly acquired customers.

To position itself for the long term, management noted that it is still expanding its presence in the area of life sciences, leveraging its strong reputation. The increasing complexity of equipment such those required for diagnostics will also present more value creation opportunities down the road.

Separately, the group has also managed to secure a new customer, which is one of the leading companies involved in producing test equipment for chip manufacturing. Management has also rearticulated its desire to grow ecosystems moving forward, rather than merely develop products alone.

FV of S$20.89

Venture’s peers are currently trading at an implied forward target P/E of 9.6x – 18.3x. Venture continues to demonstrate stronger margins than its peers, and remains in a healthy net cash position. Thus, we believe that our FY19/20F P/E peg of 15x on which our FV of S$20.89 is premised upon remains undemanding. Maintain BUY.

Source: OCBC Research - 26 Apr 2019