Venture Corporation - DBS Research 2017-02-27: Consistency is the key

Venture Corporation - DBS Vickers 2017-02-27: Consistency is the key VENTURE CORPORATION LIMITED V03.SI

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.


Valuation

  • 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.




Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2017-02-27
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 11.37 Up 10.900



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