Venture Corporation - DBS Research 2016-02-26: Safe haven from weak Asian currencies

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VENTURE CORPORATION LIMITED V03.SI 

Venture Corporation - Safe haven from weak Asian currencies 

• 4Q15 profit of S$ 44.8m (+11% q-o-q) was towards the upper end of estimates, boosted by Test, Medical Life Science segment & forex 
• Expect slower 1H16 due to macro weakness 
• Maintain BUY on unchanged TP of S$9.00 

Expect single-digit earnings growth despite macro weakness. 

• The relatively weak global macro economic outlook is likely to dampen Venture’s growth in 1H16. Venture has major exposure to US and EU with relatively smaller exposure to Asia. As such, we have conservatively lowered our FY16F EPS by c.4%. 

Weak MYR and strong USD to improve profitability. 

• A possible foreign worker levy increase in Malaysia, which is far from certain, is a key downside risk to our forecasts 4Q15 net profit was towards the upper end of expectations. 
• Topline growth was helped by the depreciation of the SGD against the USD in FY15. Revenues were flat on constant currency terms. 
• Test, Medical and Life Science segment and Networking, Communications segment offset declines in the printing and imaging segment. 
• The tax charge saw a marked increase due to the expiry of tax incentives and is expected to remain stable in FY16F. 

To benefit from weak Asian currencies. 

• MYR has depreciated 13% against the SGD over the last one year. With almost 60% of staff costs incurred in Malaysia and with staff costs amounting to c. 10% of group revenue, this is likely contribute to margin improvement in 1H16. 
• USD has appreciated 10% against SGD over the last one year. With 100% of Venture’s revenues denominated in USD, this should result in higher recognised revenues. 
• We estimate that each 2% decline in MYR and each 2% rise in USD would have a 1.5% and 2% positive impact on its earnings respectively. 

Valuation: 

• Our target price of S$9.00 is based on a historical mean PE of 15x on FY16F earnings. 
• The stock offers potential returns of 12% in addition to 6% yield. 

Key Risks to Our View: 

• Possible foreign worker levy increase in Malaysia is a key downside risk. 
• The recent proposal to raise the foreign worker levy in Malaysia could raise Venture’s staff costs if it becomes effective. Venture could struggle to show any earnings growth in FY16F in the event of an increase in the levy. 

Sachin Mittal DBS Vickers | http://www.dbsvickers.com/ 2016-02-26

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