Venture Corp - OCBC Investment 2017-02-27: Yet another positive surprise

Venture Corp - OCBC Investment 2017-02-27: Yet another positive surprise VENTURE CORPORATION LIMITED V03.SI

Venture Corp - Yet another positive surprise

  • FY16 results beat expectations.
  • Revenue growth momentum to continue.
  • Potential tailwinds from FX.

FY16 PATMI formed 106.1% of our forecast 

  • Venture Corporation Ltd’s (VMS) growth momentum continued into 4Q16 as revenue surged 23.1% YoY to S$854.6m, mainly driven by the Test & Measurement/Medical & Life Science/Others (TMO) segment. 
  • 4Q16 operating expenses jumped 23.3% YoY to S$792.8m, with growth registered across all expense items, inline with higher revenue. Consequently, 4Q16 profit before tax (PBT) and PATMI increased 22.7% YoY and 20.6% to S$65.1m and S$54.1m, respectively, despite a 34.3% increase in tax expense. 
  • For FY16, VMS’ PATMI beat our expectations as it rose 17.3% to S$180.7m, which formed 106.1% of our FY16 forecast. 
  • Revenue for FY16 grew 8.2% to S$2.8b, mainly driven by TMO and Networking & Communication segment. FY16 PBT and net margins also saw solid YoY improvement of 0.7ppt and 0.5ppt to 7.5% and 6.3%, respectively, as the strategy in pursuit of value creation for its customers continues to bear fruits.

FX seems to be in VMS’ favour 

  • After Trump was elected U.S. president on 8 Nov, the USD has strengthened against its major peers, and specifically, appreciated ~1.4% against the SGD to 1.4061 on 23 Feb. We believe this may be the result of expectations for Trump’s pro-growth policies for the U.S.
  • Bloomberg consensus forecast expects USD to further strengthen against the SGD to 1.45 by 2018. OCBC Treasury Research and Strategy (as at 6 Feb) also forecasted for the USD to appreciate against the SGD to hit 1.4488 by Dec 17. 
  • In our view, VMS will be a beneficiary of USD strength with > 90% of its revenue denominated in USD. In addition, we believe VMS will benefit from the weak MYR against SGD with ~60% of its manufacturing performed in Malaysia. Hence, if the weakness of MYR against SGD persists, VMS could potentially see a lift in earnings as a result of lower operating expenses.

Raise FV to S$11.00

  • On the back of improved balance sheet and strong FY16 results, we raise our FY17F PATMI by 7.3% and introduce FY18 forecasts.
  • Consequently, reiterate BUY on VMS with a higher FV of S$11.00 (prev: S$10.36).

Eugene Chua OCBC Investment | 2017-02-27
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 11.00 Up 10.360