Venture Corp - RHB Invest 2017-05-02: Strong 1Q17 Brightens Outlook

Venture Corp - RHB Invest 2017-05-02: Strong 1Q17 Brightens Outlook VENTURE CORPORATION LIMITED V03.SI

Venture Corp - Strong 1Q17 Brightens Outlook

  • Venture reported a strong 1Q17, well above our and consensus expectations, aided by cost control initiatives, sustained operational excellence, as well as its new product/programme execution with several customers. 
  • Going forward, we see a bright outlook ahead for Venture in 2017F, and we expect dividends to rise by 20% if it can maintain its solid performance. 
  • We lift our 2017F NPAT by 22% due to the superb performance in 1Q17, and raise our DCF-derived TP to SGD14.10 (from SGD11.20, 16% upside), which implies 2017F P/E of 17x. Maintain BUY.

Margin improvement likely to continue. 

  • Venture Corp’s (Venture) PBT margins in 1Q17 improved to 7.1% from 6.7%. 
  • Going forward, we believe it would likely continue to improve its margins in 2017F, through a shift in revenue mix to higher-margin projects, as well as continued efforts in driving operational efficiencies across its value chain to lower costs.

Penang expansion would be delayed. 

  • Management noted that Venture is unlikely to start development on its grounds in Penang as it currently has additional capacity at the existing factories. The new development would likely only commence when there is a need to expand capacity in the future. As a result, we do not expect capex to increase significantly in the near term.

Increased dividends payout likely in 2017F. 

  • Venture has been paying SGD0.50/share for the past few years despite a recovery in their results. However, with the strong performance in 1Q17, we believe dividends would likely be raised to reward shareholders if the solid performance can be maintained. 
  • We expect dividends for 2017F to be raised by 20% to SGD0.60/share, reflecting 2017F dividend yield of 4.9%.

Test & measurements likely to enjoy strong growth. 

  • The test and measurements segment enjoyed strong growth in 1Q17, growing more than 50% YoY. 
  • Going forward, we remain positive on this segment and expect the strong performance to continue for the remainder of 2017, as it secures demand from new and existing customers, albeit at an expected slower pace due to the larger base effect.

Maintain BUY with higher DCF-derived TP of SGD14.10. 

  • Given the superb performance in 1Q17, we remain positive on Venture as it is likely to continue its positive performance with a strong 2017F ahead. 
  • We expect Venture to still grow positively despite the tough macro environment as it has illustrated over the past few years. 
  • Going forward, we expect a rise in dividends by 20% if the company manages to maintain its performance. We lift our 2017F NPAT by 22% due to the strong 1Q17, and raise our DCF-derived TP to SGD14.10, which implies FY17F P/E of 17x. 
  • Maintain BUY. 

Key risks. 

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

Jarick Seet RHB Invest | 2017-05-02
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 14.10 Up 11.200