Venture Corporation (VMS SP) - UOB Kay Hian 2017-08-07: 2Q17 Unseasonal Steep Sequential Ramp-up; Upgrade To BUY

Venture Corporation (VMS SP) - UOB Kay Hian 2017-08-07: 2Q17: Unseasonal Steep Sequential Ramp-up; Upgrade To BUY VENTURE CORPORATION LIMITED V03.SI

Venture Corporation (VMS SP) - 2Q17: Unseasonal Steep Sequential Ramp-up; Upgrade To BUY

  • Venture reported net profit of S$69.8m for 2Q17 (+60.9% yoy), ahead of our expectation of S$54.6m. 
  • We believe the steep sequential ramp-up in revenue was driven by medical devices. The solid results increased the probability that Venture would raise its final dividend from 50 to 55 S cents. 
  • Upgrade to BUY with a higher target price of S$15.15.


Strong 2Q17 results, exceeding our and street expectations. 

  • Venture announced 2Q17 net profit of S$69.8m (+60.9% yoy), exceeding our expectation of S$54.6m.

Unseasonally steep sequential ramp-up. 

  • Venture achieved revenue of S$1,013m (+48.3% yoy, +20.2% qoq) in 2Q17, crossing the S$1b market again after 10 years. 
  • The company has stopped disclosing revenue by business segments. We understand that the steep sequential ramp-up, which is unseasonal, was driven by medical devices. 
  • The strong revenue improvement is underpinned by the group’s diversified customer base and strong execution of customers’ programmes launched in the prior quarters.

Margins continued to march upwards. 

  • Gross margin was stable at 21.2%. Pre-tax margin improved 0.7ppt yoy to 8.3% due to economies of scale from higher production volume and a 32% decline in amortisation for carrying value of an intangible asset for customer relationships was fully amortised in 2016. 
  • Net margin also improved 0.5ppt yoy to 6.9%.

Net cash remained resilient. 

  • Venture’s net cash dipped slightly to S$366.5m (S$1.31/share) on payment of a final dividend (1Q17: S$407.1m or S$1.43/share. The company is well able to cope with higher working capital requirements to support its revenue growth.

Potential upside from higher dividends. 

  • The good results raised the probability that Venture would raise dividends from S$0.50 to S$0.55/share in 2017, which is still a conservative payout of 60% vs 76% in 2016 and 89% in 2015.


Value creation is delivering stellar results. 

  • Venture’s commitment to provide strong value creation for the success of its business alliances and partners is reaping outstanding results. 
  • Venture’s total customer service (TCS) management practices has allow it to deepen its partnerships with leaders in the ecosystem in targeted technology domains and also enables the group to forge new collaborative alliances and capture additional opportunities.

Human capital is key driver for differentiation. 

  • Venture remains committed to creating value for its customers and partners. This could be accomplished through developing a strong pool of human capital in management, engineering and other professionals to create differentiation in its solutions, products and services.

Venture benefits from recovery in exports of capital equipment. 

  • There is an upswing in exports of capital equipment from the US, Europe and Japan, which grew 1.9%, 13.9% and 17.1% yoy respectively. We believe this is a good indicator that demand for Venture’s industrial and enterprise products is recovering.


  • We raise our net profit forecasts for 2017-18 by 12% and 3% respectively due to strong business growth and revenue momentum.


  • Upgrade to BUY. 
  • Our new target price of S$15.15 (previously S$13.30) is based on 2018F PE of 16x (Benchmark Electronics: 22.2x, Plexus Corporation: 16.2x).


  • Further contribution from new products, particularly from the medical devices, life sciences and industrial spaces, as well as continued margin expansion.
  • Dividend yield of 4% is among the highest in the technology sector.

Jonathan Koh CFA UOB Kay Hian | Thai Wei Ying UOB Kay Hian | 2017-08-07
UOB Kay Hian SGX Stock Analyst Report BUY Upgrade HOLD 15.15 Up 13.300