Venture Corp - OCBC Investment 2016-02-26: Strategy on value creation seeing results

Venture Corp - OCBC Investment 2016-02-26: Strategy on value creation seeing results VENTURE CORPORATION LIMITED V03.SI 

Venture Corp: Strategy on value creation seeing results 

  • FY15 slightly above expectations 
  • FY14 retrospectively restated 
  • Attractive dividend yield of 6.2% 

Growing on higher margins 

  • Venture Corporation Ltd (VMS) recorded an impairment loss of S$63.8m relating to one of its associates as a prior year adjustment (PYA) in FY14 (refer to page 2 for more details). 
  • However, in order to make meaningful comparison with FY15 results, we stripped out this impairment loss. 
  • VMS’ 4Q15 PATMI grew 14.0% YoY to S$44.8m on the back of a 2.9% increase in revenue to S$694.0m, with growth driven mainly by Test & Measurement/Medical & Life Science/Others (TMO) and Networking & Communication (N&C). 
  • For FY15, revenue grew 7.7% to S$2.66b while PATMI rose 10.2% to S$154.0m and formed 101.7% of our FY15 forecast. 
  • All segments except Printing & Imaging (P&I) achieved top-line growth. 
  • As a result of its focus on creating value for customers by investing in research and development, VMS’ managed to improve its FY15 PBT margin by 0.5ppt to 6.8%. 
  • Due to higher tax expense with changes in tax incentives, VMS’ net margin only rose 0.1ppt to 5.8%. 

Medical & life science segment still a bright spot 

  • Looking ahead, we believe the main segment expected to drive consistent top-line growth ahead will likely be TMO segment, especially from its Medical & Life Science sub-segment. 
  • We believe the QoQ improvements in margins since 1Q15 are the results of its strategy to focus on creating value for customers. 
  • We think this strategy has not only led to better and sustainable margins, but it has also allowed VMS to gain market share through acquisition of new customers and increasing exposure of offerings within existing customers’ product libraries. 
  • While world economic uncertainty may slow down businesses globally, we expect VMS’ ability to innovate and develop new products alongside its customers will certainly help sustain or even improve margins. 
  • We also expect VMS’ continuous efforts to drive productivity will also help reduce its manufacturing costs as a proportion of revenue contribution. 

Reiterate BUY on steady growth ahead 

  • Therefore, we expect VMS’ steady growth momemtum to continue and opt to keep our forecasts largely unchanged. 
  • On strong balance sheet and diversified revenue base, we reiterate BUY on VMS with fair value estimate of S$9.00, supported by an attractive dividend yield of 6.2%.

Eugene Chua OCBC Securities | 2016-02-26
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 9.00 Same 9.00