Venture (VMS SP) - Maybank Kim Eng 2017-05-02: From Strength To Strength

Venture (VMS SP) - Maybank Kim Eng 2017-05-02: From Strength To Strength VENTURE CORPORATION LIMITED V03.SI

Venture (VMS SP) - From Strength To Strength


Maintain BUY with 16% higher TP of SGD13.35 

  • Maintain BUY following 1Q17 above expectations, where NP rose 36% YoY in a very strong start to the year. We have lifted our TP 16% to SGD13.35 following upward revisions to EPS est.’s in FY17/18/19 of 11%/4%/5%.
  • Our TP is based on 16x FY17 P/E, in line with a PEG of 1x and a 3-year EPS CAGR of 16%, as well as the peer average of 16.5x. 
  • We expect the early momentum to be sustained in 2017 based on its broad-based growth, particularly from the Life Sciences segment where leading customers, such as Illumina have launched new products.


1Q17 above expectations 

  • 1Q17 core NP rose 36% YoY in a very strong start to the year, much stronger than seasonally expected, which suggests broad-based growth in customers’ mass-production orders. We note that gene sequencing customer Illumina is benefiting from a strong customer upgrade cycle, driven by its latest NovaSeq sequencer. 
  • Not surprisingly, Venture’s Test & Measurement/Medical & Life Sciences segment jumped 79% YoY/10% QoQ to account for a record-high 52% of revenue (39% in 1Q16).


Broad-based growth in demand 

  • Other than Medical and Life Sciences, Networking & Communication revenue also grew by a strong 22% YoY in 1Q17, reflecting robust equipment demand by cloud providers, while Retail Store Solutions also grew a decent 8% YoY. 
  • Overall, growth segments accounted for 90% of total revenue, up from just 58% a year ago. Barring unforeseen circumstances, we expect this strong momentum to continue for the rest of the year.


Raised forecasts and TP 

  • 1Q17 NP accounted for 23% of our previous full-year forecast.
  • Historically, 1Q is Venture’s lowest quarter of the year at < 20% of full-year results. We raised our EPS forecast for FY17 by 11% and FY18/19 by 4-5% to reflect stronger-than-expected revenue momentum and stable margins. 
  • We value Venture at 16x earnings (up from 15x before), in line with 1x its 3Y EPS CAGR of 16% and its sector peer PE average of 16.5x. 
  • Maintain BUY. TP raised to SGD13.35.


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/ 2017-05-02
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 13.35 Up 11.500



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