Venture Corporation - DBS Research 2017-02-27: Consistency is the key

VENTURE CORPORATION LIMITED V03.SI

Venture Corporation - Consistency is the key

4Q16 net profit of S$54.1m (+26% y-o-y, +14% q- o-q) was 8-9% above expectations; higher revenue due to new products/programmes helped increase earnings
Business mix, exchange movement to support earnings growth in FY17
Maintaining BUY with a revised TP of S$ 11.37.

The math works inVenture's favour as growing segments comprise over 40% while fast-shrinking segments make up only 11% of the total business.
Venture's exposure to growing segments such as the Test, Measurement, Medical & Life Science, coupled with the fact that Venture has added 100 new customers over the last six years (33% of its customer base), is likely to keep the momentum going.
Fixed dividend commitment of 50 Scts (4.8% yield) coupled with 10% earnings growth prospects in FY17F is attractive in our opinion.

Net profit of S$54.1m (+26% y-o-y, +14% q-o-q) was ~8-9% above our expectations. Revenue was boosted by new product and programme introductions as well as new customer wins.
The growth was largely in the Test, Measurement, Medical and Life Science segment, which commands superior margins.
Net profit would have been S$4-5m higher excluding one-off provision.

Venture's evolving business mix, with increasing contribution from the Test, Measurement, Medical and Life Science segments and declining contribution from computer peripherals and printing, is likely to sustain its gross margins.
We believe that the specialised nature of the Medical and Life Science segment permits Venture to realise better margins. Along with revised revenue, this has resulted in 4%/8% revisions to our FY17/FY18 earnings.

Maintain BUY with a revised TP of S$ 11.37. We revise up our TP to S$11.37 as we increase our earnings expectation for FY17F.
Our TP is based on 16x FY17 PE, which is +1SD of its historical mean PE as we expect the market to re-rate Venture following 13 consecutive quarters (y-o-y) of steady revenue and profit growth.
The counter also offers a dividend yield of 4.8%.

Weakening global growth prospects. As Venture has exposure to the US, EU and Asia, a broad global slowdown is likely to impact Venture due to its vulnerability to business cycles. Potential weakening of the USD could also dampen growth in revenues.

Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2017-02-27

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 11.37 Up 10.900