Venture Corporation - CIMB Research 2016-02-25: As expected

Venture Corporation - CIMB Research 2016-02-25: As expected VENTURE CORPORATION LIMITED V03.SI 

Venture Corporation - As expected 

  • 4Q15 in line; revenue growth aided by exchange rate and gains in market share. 
  • Tax rate continues to climb due to higher non-tax exempt business contribution. 
  • Working capital lengthened on need to hold inventory on customers’ behalf. 
  • Wrote-off investment in associate DMX in entirety (S$63.8m) as an adjustment to FY14 results. Provided S$2.5m for bad debt in 4Q15. 
  • Target price cut to S$9.52, still based on 14x (6-year historical average) CY17F EPS. 

■ In line 

  • 4Q15 core earnings were in line with expectations as Venture continued to execute well with customers. 
  • All segments expanded yoy except Printing and Imaging. 
  • Venture remains cash generative, and was in a strong net cash position of S$324.3m at endFY15 (FY14: S$224.3m). Free cash flow generated was S$245.5m versus S$129.5m in FY14. 
  • FY15 earnings were in line with ours and market expectations. A DPS of S$0.50 was also declared. 

■ Is the balance sheet still strong? 

  • As at end-FY15, Venture’s net cash position was S$324.3 or S$1.17 per share (~15% of market cap). 
  • Venture wrote-off its entire investment in associate DMX as a prior year adjustment in FY14 accounts. 
  • As for the S$640m goodwill on its balance sheet, management guided that impairment is unlikely as the business unit is cash generative and there is a lot of headroom before an impairment situation is reached. 

■ Outlook 

  • Venture will continue to pursue its strategy of building distinctive differentiation by developing new strengths, dynamism and capabilities to drive superior performance and stay ahead of competition. 
  • The focus will be on new business and product development in several domain areas. Its ongoing recruitment and development of strong and dynamic technical and management talents will deepen and broaden the group’s core competencies for enhanced competitiveness and customer support. 

■ Data points from GFC/Euro crisis 

  • Venture’s P/BV ratios during the GFC/Euro crisis were low at 0.56x/0.88x. Translating these parameters to our CY16 BVPS forecast of S$6.94 leads to share price of S$3.89/S$6.11. 
  • As at end-FY15, NTA per share was S$4.53. 
  • Venture has an established track record as a dividend paying company. For the period FY04-15, yearly DPS was S$0.50 except for FY10-11 when it was S$0.55 per share. 

■ Maintain Add 

  • We pare our target price to S$9.52, 14x P/E multiple (6-year average). 
  • Note that our core EPS downgrades are due to us taking a preemptive cut to sales growth given the slowing global economy. Maintain Add. 
  • We continue to expect DPS of S$0.50 (6.2% yield). We note that over FY08-FY13 (excluding FY10), the largest yoy revenue decline was ~10%. 
  • As a scenario simulation, a 5% revenue decline in FY16-17 would reduce our target price to S$7.11 based on 14x earnings.

William TNG CFA CIMB Securities | 2016-02-25
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 9.52 Down 10.11