Thesis Intact; Maintain BUY

• VENTURE CORPORATION LIMITED (SGX:V03)'s 1H19 PATMI was in line/ slightly short of consensus/ our estimates. Considering the challenges from customers’ product transitions and heightened customer caution, 2Q19 PATMI of SGD90.1m (-7% y-o-y) is respectable.
• 2H19 performance is supported by new product introductions across multiple domains.
• Although FY19-21E EPS is trimmed by 4-5% due to increased customer caution, Venture Corp remains our top pick as it is
  1. a beneficiary of the US-China trade war, and
  2. leveraged to exciting megatrends across a diverse set of customers.
• ROE-g/COE-g Target Price falls to SGD18.88, on unchanged 2.2x FY19E P/B. BUY.

Diversified Customer Base Provided 2Q19 Resilience

• Due to customers’ product transitions, 2Q19 revenue fell 5% y-o-y. We see this as a resilient achievement, given the high base comparison from 2Q18 and rising macroeconomic headwinds. We attribute this to Venture Corp’s ability to capture value across its diversified portfolio of customers.
• Net margin was sustained at 10% y-o-y.

Long-term Growth Drivers Intact

• Venture Corp sees insignificant impact from the US’ blacklisting of Huawei. New products across multiple domains will be launched in 3Q19, with mass production in 4Q19. While this is a positive sign, lack of visibility pertaining 4Q19 end-market demand is something that we are mindful of.
• Long-term growth drivers appear intact. Venture Corp’s footprint for advanced manufacturing in Malaysia and Singapore is an advantage in context of the US-China trade war, in our view. Venture Corp’s customers are also leveraged to exciting trends in genomics, food safety and 5G infrastructure. This may cushion the impact of reduced corporate capex amid increasing cautiousness.

Risks

• Venture Corp is assuming the volatile environment will persist, and has placed several initiatives to help it navigate. A key risk to our view is worse than expected deterioration in demand across many end-markets, induced by steeper than expected economic slowdown.

Forecast Changes

• We trim FY19-21E PATMI by 4-5% to factor in increased customer caution amid persisting macroeconomic volatility. For FY19E, our new estimate implies a 1H: 2H seasonality assumption of 50:50.
• Typically, 2H is seasonally stronger for Venture Corp, accounting for 55% of full year. This is to account for lack of end-market visibility for 4Q19, according to Venture Corp.
• Our DPS assumptions stays put, as we believe Venture Corp will maintain at least SGD0.70 during our forecast years, on the back of strong cash generation. This translates to FY19-21E dividend yield of around 5%.

Source: Maybank Kim Eng Research - 12 Aug 2019