• Venture Corp (SGX:V03)’s key customer Illumina reported in its 1Q20 results announcement on 30 Apr that sequencing unit shipments were down y-o-y.
• Citing the COVID-19 outbreak as a reason, Illumina said it was unable to provide guidance for FY20, but expects 2Q20 revenue to be much lower q-o-q.
• Reiterate ADD on Venture Corp on long-term prospects and strong balance sheet.

Illumina’s 1Q20 Unit Shipments Fell

• Illumina, a key customer of Venture Corp, reported its 1Q20 results on 30 Apr. Of relevance to Venture Corp would be Illumina’s total unit shipments which were lower than the company’s expectations for the quarter. This was due to the disruption caused by COVID-19. Without the outbreak, Illumina said it would have comfortably exceeded its sequencing system revenue expectation for the quarter.
• First customer shipments of its NextSeq 2000 (launched in 1Q20) happened in Mar 2020. Orders for the system were in line with Illumina’s internal forecast for the first quarter, but shipments were lower than expected because of the COVID-19 disruption at the end of the quarter. Early adopters of the NextSeq 2000 included both existing and new Illumina customers in research and academic institutions. Initial NextSeq 2000 applications include food safety, genetic disease, cancer, and COVID-19 research. Almost half of the new NextSeq 2000s were shipped to new to Illumina system customers, ahead of the company’s expectations.

Illumina Unable to Provide Guidance for FY20

• On guidance, Illumina said it expects 2Q20 to be extremely challenging with sequential revenue declines across all geographies. Illumina has withdrawn all its previous guidance (including comments on NovaSeq or other system portal, NextSeq 1000 and 2000 shipment expectations) for the year due to uncertainties around the severity and duration of the COVID-19 outbreak.
• The company noted a higher risk of transportation delays associated with border closures and a drop in air freight capacity linked to fewer passenger flights. No numerical guidance on 2Q20 was offered but the company expects substantially lower revenue and hence gross margins in 2Q20.

Reiterate ADD

• We reiterate our ADD call on Venture Corp. Our Target Price is based on 12.5x FY21F EPS (0.5 s.d. below its 13-year forward average P/E of 15.4x).
• Potential re-rating catalysts include new product launches by customers.
• Downside risks include slower orders from customers and the impact of an escalation of the COVID-19 outbreak.

Source: CGS-CIMB Research - 4 May 2020