• In-line quarter
• Guiding for a better 2H20
• Higher FV of S$18.09

Good Quarter

Venture Corporation Ltd’s (Venture) 4Q19 results were in-line with expectations. Revenue grew 2.9% YoY to S$932.1m, which management attributed to a well-diversified customer base, and exposure to key domains like life-sciences and instrumentation. PATMI for 4Q19 grew fell 10.6% YoY to S$96.3m, while full-year core PATMI came in at S$356.4m, or 100.5% of our full-year forecast. FY19 net profit margin came in at ~10%, at the high end of its usual 6-10% target. Management has declared a final DPS of 50 S cents, bringing total DPS for the year to 70 S cents, unchanged from FY18.

Looking Past Short-term Disruptions

COVID-19 has undoubtedly caused disruptions to global supply chains. While it is to be expected that 1Q20 should see some backlog, Venture expects to be able to fulfil most, if not all of its customers’ orders. Management has highlighted that they have implemented corrective action plans to stabilise its own supply. Management has also noted that they expect a stronger 2H20, with traction from both new and existing partners.

In terms of new product introductions by existing partners, the group has highlighted multiple technology domains including Life Science, Healthcare & Wellness, Instrumentation and Networking & Communications. The group also expects to gain momentum with several new partners in the Life Science & Genomics and Healthcare & Wellness domains with growing contributions beyond 2020.

In our view, Venture could also potentially benefit from customers seeking alternative manufacturing partners who possess facilities ex-China for supply chain resilience and diversity. We believe this could potentially be one of the factors for Venture to speed up the development of factories in Batu Kawan in Malaysia.

We understand that the majority of Venture’s manufacturing footprint is mostly outside China; Chinese facilities contribute to less than 10% of total output, with about 75-80% of its Chinese workforce now back at work. Based on a 13.9x target P/E (5-year mean), we derive a FV of S$18.09.

Source: OCBC Research - 2 Mar 2020