• Based on our understanding, Venture Corp (SGX:V03)’s customers’ corporate plans are on track. Hence, we still expect y-o-y profit growth in FY20.
• We expect 4Q19 results to be announced on 27 Feb with net profit of S$85.5m (+0.3% q-o-q, -20.6% y-o-y).
• We maintain our HOLD call.
• Our base case scenario is a final DPS of S$0.50.

Liu He Goes to America

• Under the Phase One deal that the US and China have agreed upon, the US will cancel tariffs that were due to come into force on 15 Dec, and halve a 15% tariff on US$120bn worth of Chinese goods. However, 25% tariffs on US$250bn worth of Chinese goods remain in place. Vice Premier Liu He will be in the US to sign the Phase One deal on 15 Jan 2020. While more work remains to be done on Sino-American trade relations, a Phase One deal is nevertheless a welcome relief.

Mixed Benefits to Venture From Trade Tensions

• We believe Venture Corp has had more enquiries to start new projects outside China and has also benefited from customers diverting production out of China. However, the revenue contribution arising from the trade tensions will take some time to grow in significance.
• On the broader front, the negative impact of the trade tensions has been delays in corporate decision-making at its customers’ end.

Illumina FY20 Guidance Disappointed

• On Monday, Illumina (ILMN US) disappointed US analysts with its 9-11% y-o-y revenue growth target for FY20 (US analysts were expecting 12% growth). IILMN also expects FY20 NovaSeq shipments to be lower y-o-y which could be a negative for Venture Corp. However, ILMN has new products in its pipeline, the NovaSeq DX, NextSeq 2000 (limited shipments in 1Q20) and NextSeq 1000 (shipments in 4Q20).

Milpitas Is Ready

• We understand that refurbishment of Venture Corp’s facility at Milpitas (acquisition completed on 8 Feb 2018) was completed at end-Dec 2019 and in FY20, Venture Corp will gradually fill up this facility. The facility allows for small batch manufacturing and is likely to be used as an innovation centre with possible incubation of new technology companies.

Maintain HOLD

• We expect Venture Corp to report 4Q19 results on 27 Feb 2020 with net profit coming in at S$85.5m (+0.3% q-o-q, -20.6% y-o-y). Our Venture Corp Target Price is based on 12.5x P/E which is -0.5 s.d. below the 12-year forward average P/E of 15.4x.
• Upside risks are successful new product launches by its customers, while slower orders from customers are a key downside risk.

Technical View - Upside Capped at S$16.65

• Venture Corp's share price has been inching up gradually since Dec 2019. Venture Corp is once again trading near a critical resistance level at S$16.65. Keep in mind the share price reaction near the S$16.65 area has always been met with a sharp selloff. For instance, the selloff in Nov 2019 saw the share price tumbling around 8% as the S$16.65 resistance capped the upside. Since then, the share price has struggled to breach the S$16.65 resistance. More notably, there were two more similar bearish reactions near the S$6.65 resistance in Dec 2019 and early Jan 2020. Click on view full report button below for complete analysis.
• Therefore, we think that the S$16.65 resistance would likely turn the share price down once again.

Source: CGS-CIMB Research - 14 Jan 2020