Venture Corp - Creating Value In FY17
- We believe Venture’s outlook continues to be bright, despite a challenging macroeconomic environment, and expect a better FY17 ahead for the company. Its test and measurements segment would likely continue to grow via existing and new customers.
- We also expect it to see continued value creation and margin improvements as well. It had a great FY16 through value creation, gaining more traction with existing and new customers, as well as lowering costs through research & development (R&D) initiatives.
- Maintain BUY, with a DCF-backed TP of SGD11.20 (from SGD9.90, 9% upside).
Better margins ahead.
- We believe that Venture Corp (Venture) is likely to continue improving its margins in FY17. This would be through a shift in focus to higher-margin projects, as well as the continued drive to improve operational efficiencies across its value chain in order to lower costs.
Penang expansion is delayed.
- Management noted that it is unlikely to start working on its expansion in Penang, as it already has additional capacity at Venture’s existing factories. The development would likely only start when there is a need to expand capacity in the future.
Test & measurements unit to enjoy strong growth.
- Its test and measurement unit enjoyed strong growth in 2016. Going forward, we expect this to continue in 2017 – albeit likely at a slower pace due to the higher base.
- Downside risks to our call include a further slowdown in the economy.
Maintain BUY with a higher DCF-backed TP of SGD11.20.
- With a solid FY16 under its belt, we remain upbeat on Venture. We expect it to continue its robust performance and expect a positive FY17 ahead.
- We do expect the company to still grow positively despite the tough macroeconomic environment. As a result, we maintain our BUY recommendation, with a higher DCF-backed TP of SGD11.20 (from SGD9.90), which implies 16x FY17F P/E.