Venture Corp - RHB Invest 2016-08-08: Sturdy And Steady Performance Ahead

Venture Corp - RHB Invest 2016-08-08: Sturdy And Steady Performance Ahead VENTURE CORPORATION LIMITED V03.SI 

Venture Corp - Sturdy And Steady Performance Ahead

  • With a better than expected 2Q16, we believe the earnings prospects are bright for Venture Corp despite a challenging outlook. 
  • The Test and Measurements segment saw strong growth and this trend will likely continue as the company grow existing and new customers. 
  • Going forward, we expect value creation and operational excellence across the Group’s entire value-chain to drive margin improvements. 
  • We lift our FY16F NPAT estimates by 6%, resulting in a higher DCF-based TP of SGD9.90 (from SGD9.10, 11% upside).


Moving ahead, strong and steady. 

  • Despite an uncertain economic outlook, Venture Corp managed to deliver a 20.3% YoY increase in NPAT in 2Q16. The higher net margin is attributed to a diversified and healthy customer base. 
  • We expect the company to sustain steady earnings growth despite a challenging outlook. The company’s gross and net margins are expected to expand given improving operational excellence and investments in R&D which enhances value for its clients.


Increased operational efficiencies contributed towards NPAT growth.

  • Lower customers’ requirements relating to tooling and services led to a 28.7% decline in R&D expense in 2Q16, which supported NPAT expansion. Do note that the R&D expense is not a true reflection of the Group’s total R&D investments as there are some spill-over of R&D manpower costs recorded under employee benefits expense.


Risks. 

  • Downside risks to our call include a further slowdown in the economy.


Maintain BUY with a higher DCF-based TP of SGD9.90. 

  • Given better than expected 2Q16 results, we remain positive on Venture Corp and expect the company to continue its positive earnings performance. 
  • We have raised our FY16 NPAT estimates by 6%. 
  • Maintain BUY with a higher DCF-backed TP of SGD9.90, implying a 15.8x FY16F P/E.




Jarick Seet RHB Invest | http://www.rhbinvest.com/ 2016-08-08
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.90 Up 9.10


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