Venture Corporation - Consistency is the key
- 4Q16 net profit of S$54.1m (+26% y-o-y, +14% q- o-q) was 8-9% above expectations; higher revenue due to new products/programmes helped increase earnings
- Business mix, exchange movement to support earnings growth in FY17
- Maintaining BUY with a revised TP of S$ 11.37.
Consistent revenue growth over the past 13 quarters.
- The math works inVenture's favour as growing segments comprise over 40% while fast-shrinking segments make up only 11% of the total business.
- Venture's exposure to growing segments such as the Test, Measurement, Medical & Life Science, coupled with the fact that Venture has added 100 new customers over the last six years (33% of its customer base), is likely to keep the momentum going.
- Fixed dividend commitment of 50 Scts (4.8% yield) coupled with 10% earnings growth prospects in FY17F is attractive in our opinion.
4Q16 net profit was 8-9% above our expectations.
- Net profit of S$54.1m (+26% y-o-y, +14% q-o-q) was ~8-9% above our expectations. Revenue was boosted by new product and programme introductions as well as new customer wins.
- The growth was largely in the Test, Measurement, Medical and Life Science segment, which commands superior margins.
- Net profit would have been S$4-5m higher excluding one-off provision.
Changing business mix to support healthy margins.
- Venture's evolving business mix, with increasing contribution from the Test, Measurement, Medical and Life Science segments and declining contribution from computer peripherals and printing, is likely to sustain its gross margins.
- We believe that the specialised nature of the Medical and Life Science segment permits Venture to realise better margins. Along with revised revenue, this has resulted in 4%/8% revisions to our FY17/FY18 earnings.
- Maintain BUY with a revised TP of S$ 11.37. We revise up our TP to S$11.37 as we increase our earnings expectation for FY17F.
- Our TP is based on 16x FY17 PE, which is +1SD of its historical mean PE as we expect the market to re-rate Venture following 13 consecutive quarters (y-o-y) of steady revenue and profit growth.
- The counter also offers a dividend yield of 4.8%.
Key Risks to Our View
- Weakening global growth prospects. As Venture has exposure to the US, EU and Asia, a broad global slowdown is likely to impact Venture due to its vulnerability to business cycles. Potential weakening of the USD could also dampen growth in revenues.