Venture Corp - OCBC Investment 2016-07-08: Well poised for growth

Venture Corp - OCBC Investment 2016-07-08: Well poised for growth VENTURE CORPORATION LIMITED V03.SI 

Venture Corp: Well poised for growth

  • Stronger USD may boost revenue growth
  • Ready for future expansion
  • Reiterate BUY

Beneficiary of strengthening USD against SGD

  • With the referendum in the United Kingdom now over and British voters having voted for Brexit, we are seeing volatility in the foreign exchange markets. Just two days ago, GBP plunged to a 31-year low against the USD, while the EUR saw a more than 2% fall in value against the USD since the referendum. 
  • On the other hand, against SGD, the USD has since the Brexit vote appreciated by almost 1.0% to settle at 1.3503 on 6 Jul. According to forecasts by OCBC Treasury Research and Strategy (as at 30 Jun), USD is expected to further appreciate against SGD to hit 1.4000 by Jun 17. 
  • With more than 90% of Venture Corporation Ltd’s (VMS) revenue denominated in USD, the forecasted strengthening of USD against SGD will likely boost its revenue growth in at least 2H16 and 1H17. 
  • Recall that in 3Q15, when USD saw a 5.6% appreciation against the SGD, about 55% of VMS’ 15.7% YoY growth in 3Q15 revenue was attributable to forex movement.

Acquired large plot of land in Malaysia

  • VMS announced this week that it has completed the acquisition of a 123,706 sqm plot of land in Penang, Malaysia, for MYR33.3m. This new plot of land is 2.55x and 0.56x the combined size of VMS’ existing properties in Penang and Malaysia, respectively. The land acquisition did not come as a surprise to us since management has in the past highlighted their intention on land acquisition in preparation for future capacity expansion. 
  • According to VMS, there are currently no plans to build any factory on the new land but if the need arises, we believe it will take less than a year to complete a single-storey factory to ramp up capacity. 
  • In our view, with average utilization already at ~80%, we believe VMS is now better poised for further expansion, especially since it has been acquiring new customers and gaining market share with existing customers over the past few years.

Attractive FY16F dividend yield of 5.8%

  • With more than half a year now over, we roll-forward to 15x blended FY16/17F PER on largely unchanged forecasts. Consequently, our fair value estimate increases from S$9.00 to S$9.35. Reiterate BUY.

Eugene Chua OCBC Securities | 2016-07-08
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 9.35 Up 9.00