Venture Corp - OCBC Investment 2015-12-11: More than just a manufacturer

Venture Corp - OCBC Investment 2015-12-11: More than just a manufacturer VENTURE CORPORATION LIMITED V03.SI 

Venture Corp: More than just a manufacturer 

 Stable margins since 1Q10 
 Stronger USD to boost revenue growth 
 Attractive dividend yield of 5.9% 

Value creation a key strategy 

  • VMS’ strength lies in its ability to sustain its net margins above 5%, which is evident since 1Q10. In our view, this is only possible with its strategy of focusing on creating value for customers, rather than being just another Electronics Manufacturing Services (EMS) player. 
  • The direction VMS is heading towards is to provide strong support to customers by being involved from the design phase through the manufacturing phase for new products. VMS also engages customers and work on how to make designs of existing products to be more valuable for its customers but at the same time more cost-efficient to manufacture. This strategy has certainly helped it gain market share within its existing pool of customers and acquire new customers over the past few years. 
  • A quick comparison of VMS’ EMS peers showed that their historical net margins range from ~1-4%, with an average of ~2.5%. VMS’ ability to sustain its net margins above 5% despite the significantly higher tax rates is definitely a positive characteristic of the company. 

Strengthening of USD to help boost top-line growth 

  • As highlighted in our previous reports, the main segment expected to drive consistent top-line growth ahead will likely be Test & Measurement/Medical & Life Science/Other (TMO), especially from its Medical & Life Science sub-segment. 
  • Another key point to note is that with at least 90% of VMS’ revenue denominated in USD, further strengthening of USD against SGD will continue to boost its revenue growth ahead. This is already evident in 3Q15 as about 55% of the 15.7% YoY growth in revenue was due to forex movement, mainly stronger USD against SGD. 
  • According to Bloomberg consensus as on 8 Dec, the median forecast is for USD/SGD to strengthen from the spot rate of 1.40 to 1.47 by 4Q16. 

Reiterate BUY 

  • Therefore, looking ahead, we expect VMS to continue its steady growth driven mainly by TMO (especially Medical & Life Science) segment. 
  • On strong balance sheet, stable margins, diversified customer base and the expected strengthening of USD against SGD, reiterate BUY with fair value estimate of S$9.00, supported by an attractive dividend yield of 6.0%. 

Eugene Chua OCBC Securities | 2015-12-11
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 9.00 Same 9.00