Venture (VMS SP) - Maybank Kim Eng 2017-02-27: A solid consensus beat

Venture (VMS SP) - Maybank Kim Eng 2017-02-27: A solid consensus beat VENTURE CORPORATION LIMITED V03.SI

Venture (VMS SP) - A solid consensus beat


Maintain BUY with 4.5% higher TP of SGD11.50 

  • Maintain BUY on Venture post-FY16 net profit that was 2% above our forecast and 5% above consensus. 
  • TP is lifted 4.5% to SGD11.50 following our estimate revisions and is based on 15x FY17 P/E, in line with a three-year PEG of 1x. 
  • 4Q16 capped a strong year, which saw results improve in businesses with high potential for value-creation. 
  • We raised FY17/18F earnings by 3.5-4% to account for the stronger run-rate in 4Q, which we expect to be sustainable given management’s expectations for capex to stay high in FY17. We see this as a leading indicator of management’s confidence in future growth.


4Q/FY16 above expectations 

  • 4Q core NP jumped 27% YoY in a very strong finish to the year, pushing the full-year core NP up 23% YoY to SGD180.5m, 2% above our forecast and 5% above consensus. 
  • The outperformance was mainly driven by Test & Measurement Medical & Life Sciences, where revenue rose 37% YoY to account for 43% of total revenue in FY16, up from 34% a year ago. It was as high as 47% in 4Q16. 
  • The higher margins of the segment also helped to improve the overall net margin to 6.3% in FY16, up 0.5ppt YoY.


Dividend hunger pangs 

  • The only slight disappointment was in dividends, as Venture maintained a full year DPS of 50 SGD cents vs our forecast of 55 cents. 
  • With rising profits, the payout ratio fell from c.90% of net profit in FY15 to just 76% in FY16. If the current earnings trajectory continues to be as strong as we project, payout will fall to 54% by FY19, assuming a DPS of 50 cents.
  • We think it is a matter of time and we continue to push for a higher DPS of 55 cents for FY17. Nevertheless, yield is still decent at 4.8% even with a DPS of 50 cents.
  • Elevated capex an advance indicator Management guided for FY17 capex to stay high at FY16’s SGD33m, of which 


Swing Factors


Upside

  • Strength in US economy, especially in segments that Venture is exposed to. 
  • Continued strength in USD due to Venture’s 100% revenue exposure to this currency. 
  • Faster-than-expected growth in 3D printing, a promising segment that has lagged others such as Life Sciences.

Downside

  • M&As among customers. Acquisitions of Venture’s customers by others could disrupt or discontinue orders. 
  • USD strength may erode competitiveness of Venture’s customers in the global marketplace, lowering orders for Venture. 
  • Increased customer demand for Venture to hold more inventory at major hubbing sites, which would tie down cash that could be used to pay more dividends. 




Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-02-27
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 11.50 Up 11.000



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