Venture Corporation - CIMB Research 2015-10-13: Rolling over

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VENTURE CORPORATION LIMITED V03.SI 

Venture Corporation - Rolling over 

• Rolling over to CY17 EPS at unchanged 6-year average P/E of 14x sees target price rising 9.5% to S$9.37. 
• Outlook remains stable though customers are not guiding for high volume growth. 
• Risk of customer consolidation remains but the worst impact of any such consolidation is over for Venture. 
• Limited capex needs, strong cash flow generation supportive of continuation of S$0.50 DPS trend. 
• Higher effective tax rate of 13-15% here to stay. Tax concessions being granted on selected activities only. 

Lunch NDR 

• We held a lunch NDR for Venture Corporation. Questions focused on: 
  1.  the current outlook for its business; 
  2.  customer concentration and outlook; 
  3.  impact of customer M&As; 
  4.  pricing pressure; 
  5.  capex needs; 
  6.  dividend policy; 
  7.  exchange rate impact, and 
  8.  effective tax rate trend. 

Outlook 

• Less than 15% of Venture’s manufacturing content is derived from Singapore. As such, Singapore’s NODX has long not been an effective leading indicator of its performance. About 60% of Venture’s shipments are to the US, 25-30% to Europe, and the balance to Asia-Pacific. 
• Based on customer feedback, Venture’s take is that the global economy is generally benign, though Europe could still be a concern. 

Customers/pricing pressure 

• Generally, Venture’s top 10 customers accounted for about 50% of its sales. Areas with growth potential include Life Sciences and 3D Printing. Venture has seen growth from new customers as well as higher unit shipments to existing customers. 
• Pricing pressure is a given in the industry and Venture addresses this by focusing on niche and less price sensitive products where it can offer value-add and justify its pricing. At the same time, effective cost management and productivity is ingrained into its corporate culture. 

Industry consolidation does not offer better supplier power 

• Venture opines that industry consolidation in the EMS industry has halted as history has shown that the M&As involving top EMS players in the past has not resulted in better supplier bargaining power. As the EMS company does not have brand ownership and remains a manufacturing supplier, the balance of power does not shift to the EMS company. 
• A fragmented share ownership may expose the company to some M&A risk while its strong cash flow generation capacity could attract private equity players. 

Rolling over 

• Our valuation basis remains 14x earnings, its 6-year avg. P/E multiple. Rolling over to our unchanged CY17 EPS forecasts, our target price rises by 9.5% to S$9.37. Venture has guided for an effective tax rate of 13-15% vs our 14% assumption for FY15-17. 
• Although there is no formal dividend policy, strong cash flow generation and limited capex needs are supportive of a S$0.50 DPS. 
• A stronger US$ and weak MYR continue to be tailwinds for Venture. Maintain Add.

William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2015-10-13

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 9.37 Up 8.56