RHB Securities 2015-08-06: Venture Corp - 2Q15 Results. Higher Taxes a Drag. Maintain NEUTRAL.

Higher Taxes a Drag

  • 2Q15 NPAT rose 7.5% YoY to SGD36.1m while revenue grew by 10% to SGD661m. The NPAT growth was partly muted by higher tax expense of SGD6.2m (65.9% YoY) due to changes in the sales mix of tax-approved products. 
  • After incorporating a higher tax rate, our FY15 NPAT estimate drops 1.5%, resulting in our TP dipping slightly to SGD8.03 (14.8x FY15 P/E). 
  • Maintain NEUTRAL while awaiting a breakthrough in 3D printers. 

 Higher taxes a drag on NPAT. 

  • Due to a 65.9% YoY surge in tax expense to SGD6.2m caused by changes in tax incentives granted to tax-approved products, Venture’s 2Q15 NPAT grew by only 7.5% to SGD36.1m despite its revenue growing by 10% to SGD661m. 
  • Net margin declined slightly to 5.5% from 5.6% in 1Q15, but PBT margin rose slightly to 6.4% from 6.2%, driven by growth of its higher-margin medical and life science segment. 

 Strong balance sheet. 

  • Despite an increase in working capital due to higher inventories to meet customers’ requirements and paying out FY14 dividends of SGD0.50/share amounting to SGD138m, Venture still manages to maintain a net cash position of SGD155m. 

 Strong growth in test & measurement and medical segments. 

  • Test and measurement segment continued to grow strongly by 11.4% YoY. 
  • Going forward, we continue to expect strong growth and margin expansion from these segments with improving operational efficiency. 

 TP lowered slightly based on 14.8x FY15 P/E. 

  • Despite improving gross margins, we revise our FY15 NPAT estimate slightly down by 1.5% to incorporate a higher tax rate incurred by the group due to a higher sales mix of more lucrative segments. 
  • We expect Venture to pay out a conservative dividend of SGD0.50 for FY15, resulting in a potential dividend yield of 6.2% based on current price levels. 
  • Going forward, management has guided that it will try to capture a larger market share within its existing 100+ customers. 
  • We remain mildly positive on Venture’s outlook and expect better quarters ahead. 
  • Maintain NEUTRAL with a revised SGD8.03 TP (from SGD8.16, 14.8x FY15 P/E), while awaiting a breakthrough in 3D printers. 

Analyst: Jarick Seet

Source: http://www.rhbgroub.com/