Venture - Maybank Kim Eng 2016-02-26: Steadily Creating Value

Venture - Maybank Kim Eng 2016-02-26: Steadily Creating Value VENTURE CORPORATION LIMITED V03.SI 

Venture (VMS SP) - Steadily Creating Value 


In Line 

  • FY15 revenue/profit were in line, at 104%/99% of our FY15F and +8%/10% YoY. 
  • 4Q’s higher margins stemmed from a better revenue mix, as high-margin segments grew faster than those tagged to GDP and the capex cycle. 
  • As USD gains last year may not be repeated, we have more conservative single-digit growth forecasts for FY16. 
  • Catalysts could include dependable growth and potentially better business disclosures. 
  • BUY with TP now at SGD9.60 (16.5x P/E, from 17x) or 20% below peers. 

Dependable Growth, Solid Yields 

  • Venture is on track for further growth, we believe, with its emphasis on value-creation segments that now exceed 50% of revenue, such as Life Sciences and Networking. 
  • As USD gains this year could be lower, we project single-digit revenue/profit growth. 
  • Further, improving cash could potentially back higher dividends in future. 
  • For now, we expect SGD0.50, yielding > 6%. 

Catalyst 1: Aberdeen Overhang Reduced 

  • Last year, redemption-hit Aberdeen cut its stake in Venture to c.9% from as high as 25%. Venture was not the only Singapore company affected; others were CityDev and ST Engineering. 
  • We think more funds will now be willing to invest in Venture without fears of an Aberdeen sell-down. This should improve the market’s value-discovery process and boost chances of a stock re-rating, in our view. 

Catalyst 2: Better Disclosures To Lift The Veil 

  • Forecasting Venture is not easy due to its high-mix business. Management plans to improve disclosures, by redefining its revenue segments to better profile the potential of today’s growth businesses. 
  • We think it can go further and we call for metrics on value creation, productivity etc on top of leading indicators, not just lagging. This way, we believe investors can gain confidence, which could potentially lead to better valuations. 


Swing Factors 


Upside 

  • Strength in US economy, especially in pockets that Venture has exposure to. 
  • Continued strength in USD due to Venture’s 100% revenue exposure to this currency. 
  • Faster-than-expected growth in 3D printing, a promising segment that has lagged others such as Life Sciences. 

Downside 

  • M&As among customers. Acquisitions of Venture’s customers by others could disrupt or discontinue orders. 
  • USD strength may erode competitiveness of Venture’s customers in global marketplace, lowering orders for Venture. 
  • Increased customer demand for Venture to hold more inventories at major hubbing sites, which would tie down cash that could be used to pay more dividends.



Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-02-26
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 9.60 Down 10.70


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