Venture Corporation - DBS Research 2016-08-08: Forex benefits realised; further upside limited

Venture Corporation - DBS Vickers 2016-08-08: Forex benefits realised; further upside limited VENTURE CORPORATION LIMITED V03.SI

Venture Corporation - Forex benefits realised; further upside limited

  • 2Q16 net profit of S$ 43.4m (+20% y-o-y, +21% qo-q) was 7-8% above expectations on cost savings. 
  • Bulk of upside from SGD/MYR movement realised; USD/SGD is a potential headwind in 2H16. 
  • Downgrade to HOLD with new TP of S$ 9.20. 



Currency movement and mixed customer sentiment suggest limited earning upside potential. 

  • We estimate that a 2% rise in each of the SGD/MYR and USD/SGD exchange rates will have a 1.5% and 2% positive impact on Venture Corporation (Venture)’s earnings respectively. The strong SGD/MYR and USD/SGD exchange rate in 2H15 implies that there will be no significant y-o-y benefit from currency movements in 2H16. 
  • In addition, Venture has guided for mixed outlook from its diverse customer base, hence we project 2H16F earnings to register low-single digit growth y-o-y.


2Q16 net profit was 7-8% above our expectations. 

  • Net profit of S$43.4m (+20% y-o-y, +21% q-o-q) was 7-8% above our estimates due to lower research & development (R&D) expense and higher forex gains. 
  • R&D expenses dropped by S$2.5m due to lower customer requirements while a portion of R&D manpower costs was reflected as staff costs. 
  • Forex gains rose by S$2.4m due to translation gains from an associate.


Some reversal of currency gains cannot be ruled out. 

  • The SGD/MYR was c. 8% y-o-y higher on average in 2Q16, resulting in improved margins during 2Q16 as 60% of Venture’s staff cost is incurred in Malaysia. Similarly, USD/SGD was c. 1% y-o-y higher in 2Q16, which benefitted revenues.
  • However, SGD/MYR has remained stable at around 2.98 since 3Q15 while SGD/USD has declined 4% below the average level seen in 2H15 implying currency headwinds.


Valuation: 

  • Downgrade to HOLD with revised TP of S$ 9.20. 
  • Our TP is based on a historical mean PE of 14.8x on average FY16F-17F earnings. 
  • The counter has appreciated 6% since our last report and has also paid dividends which represented 6% dividend yield (S$ 0.50 DPS).


Key Risks to Our View: 

  • Cyclical business and/or currency movements. A strong rebound in the global economies or strong USD/SGD exchange rate could benefit earnings and the share price.




Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2016-08-08
DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 9.20 Up 9.000


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