Venture Corporation - DBS Research 2017-08-28: Potential For Dividend Upside

SGinvestors.io

VENTURE CORPORATION LIMITED V03.SI

Venture Corporation - Potential For Dividend Upside

• Possible upside to dividends given strong earnings growth outlook.
• Strong growth momentum continues with 15th consecutive quarter of revenue growth (y-o-y basis).
• Potential for 10% increase in dividends to S$0.55/share (which was paid back in FY2010 – FY2011).
• Maintain BUY, TP S$16.60.

Possible upside to dividends given strong growth momentum. 

• In the recent quarter, Venture announced a historical-high quarterly performance. The company has demonstrated consistent revenue growth (on a y-o-y basis) for the last 15 quarters. With earnings growth trajectory gaining momentum over the last five quarters due to its exposure in attractive end markets such as genome sequencing, we believe that there is possible upside to dividends. 
• Venture has been paying S$0.50/share dividends since FY2012 and we believe there is potential for dividends to be raised by 10% to S$0.55/share in FY17F, implying ~3.6% dividend yield at current prices, which was the level paid out from FY2010 - FY2011. 
• We maintain our BUY call with TP of S$16.60 as we believe the earnings growth prospects and potential dividend upside are attractive attributes.

Where we differ: We currently have the highest TP on the street. 

• We remain positive on Venture’s growth trajectory and believe the market has yet to fully price in the company's growth potential given its unique offerings, superior technology know-how and hard-to-replicate ecosystems.

Potential catalysts: 

• New products and continued expansion into non-traditional markets with higher margins, and new customer acquisitions are potential catalysts. 
• In the long run, adoption of new enabling technologies and applications at the commercial level could re-rate the stock further.

Valuation

Maintain BUY with a revised TP of S$16.60. 

• We raised our TP to S$16.60, on higher earnings estimates, and as we roll forward our valuation base to FY18F, still pegged to its 5-year historical mean PE valuation of 18.2x. This is supported by ~19x average of forward PE for high-mix low-volume Electronic Manufacturing Services (EMS) peers.

Key Risks to Our View

Weakening global growth prospects. 

• A broad global slowdown is likely to impact Venture due to its vulnerability to business cycles. 
• Potential weakening of the USD could also dampen revenue growth.

Singapore Research Team DBS Vickers | Suvro SARKAR DBS Vickers | http://www.dbsvickers.com/ 2017-08-28

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 16.600 Same 16.600