VENTURE CORPORATION LIMITED
V03.SI
Venture Corporation - S$16.8m ‘bonus’ profit awaits in FY17
- 3Q15 in line. Revenue growth aided by exchange rate and gains in market share with customers.
- Tax rate continues to climb due to higher non-tax exempt business contribution.
- Working capital lengthened on need to hold inventory on customers’ behalf.
- End of S$16.8m amortisation of intangible asset from GES acquisition (in Nov 2006) to boost FY17 earnings.
- Target price raised by 8% to S$10.11 as we remove GES amortisation. Still valuing Venture on 14x CY17 EPS.
FX effect finally coming through
- FX impact was finally seen in 3Q15 results. Of the 16% yoy sales growth in 3Q15, ~55% was due to the stronger US$ versus S$ and 45% was due to higher volume shipments to customers. An exchange gain of S$3.0m was also reported.
- Venture also reported market share gains among existing customers and contributions from new customers.
Core operations in good shape
- Test & Measurement/Medical/Others (36% of 3Q15 revenue) remained the key growth drivers with 29.1% yoy growth.
- The Printing & Imaging segment experienced its 3rd consecutive quarter of yoy revenue decline, falling 11% yoy in the third quarter.
- Pre-tax margins hit 6.9% in 3Q15, higher than 3Q14 (6.84%) and a continued improvement from 1Q15 (6.3%) and 2Q15 (6.4%).
More work needed on working capital
- Working capital hit S$814.5m in 3Q15, driven by a sequential increase in inventories since 4Q14. The primary reason for the higher inventories is due to customers’ requests for hubbing support and to support customers’ programmes. We understand that a large part of the inventories relate to hubbing for customers.
End of GES amortisation to boost profits from FY17
- On Venture’s 3Q15 balance sheet sits S$26.5m worth of intangible assets. A large part of these intangible assets relates to the fair value of customer relationships arising from Venture’s acquisition of GES on 29 Nov 2006.
- The yearly amortisation amounts to S$16.8m and will end by FY16, freeing the P&L statement from this charge against earnings from FY17.
Raise target price by 8%
- We have made several changes to our forecasts:
- incorporating higher revenue growth due to the FX effect;
- higher R&D expenses;
- completion of GES amortisation; and
- a higher 15% tax rate to be prudent (3Q15 tax rate: 15.6%, 9M15:15.1%).
- At our unchanged 14x P/E multiple (6-year average), our target price is lifted to S$10.11.
- Maintain Add.
- Dividend expectation remains at S$0.50 per share (6.1% yield).
William TNG CFA
CIMB Securities
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http://research.itradecimb.com/
2015-11-07
CIMB Securities
SGX Stock
Analyst Report
10.11
Up
9.37
