Long-term Drivers Intact; Maintain BUY

• We remain constructive on Venture Corporation (SGX:V03)’s long-term prospects despite the current challenging operating environment, as
  1. customers historically show – and continue to demonstrate - revenue resilience;
  2. end-markets appear broadly stable; and
  3. potential from growth markets, new products and higher allocations by customers as a result of the US-China trade war is intact.
• We see room for DPS surprises, supported by strong FCF. Maintain BUY with ROE-g/COE-g Target Price of SGD18.88 (2.2x FY19E P/BV).
• Risks to our view include broad customer weakness due to a US/ global recession.
• See attached 15-page PDF report for complete analysis on Venture Corporation.

Historical Customer Resilience…

• Venture Corporation has a broad base of 100 active customers, mostly based in the US. We compare their revenue growth with broader US manufacturing.
• Historically, these customers demonstrated earnings growth even when the ISM fell y-o-y. This may be traced to the resilience and diversity of their end-markets, mainly in life sciences and 5G-related spending. Notable exceptions were GFC and the 2015 economic slowdown.

… and Continued Resilience So Far

• Consensus still expects Venture Corporation’s customers to deliver revenue growth in 2020E. Revenue expectations have been stable. This suggests that barring company-specific events, most end-markets are firm. Of Venture Corporation’s top 100 customers, most are still experiencing revenue growth. Venture Corporation remains on track to introduce or ramp-up new products in 3Q/4Q19.

Pricing in Earnings Recession; FCF Supports DPS

• Based on our ROE-g/COE-g analysis, we believe Venture Corporation's share price has priced in an FY18-21E earnings CAGR of -8%. We believe this to be unlikely, unless there is a full-blown recession in the US/globally.
• Even if FY18- 21E earnings CAGR turns out to be -11%, implying a fair value of SGD14.00, we believe Venture Corporation’s FCF generation should still be able to fund DPS of SGD0.80 pa for a potential 5.3% yield which should mitigate total returns downside from current levels.

Source: Maybank Kim Eng Research - 6 Sep 2019