Venture Corp - OCBC Investment 2017-10-12: Strong Growth Momentum To Continue

Venture Corp - OCBC Investment 2017-10-12: Strong Growth Momentum To Continue VENTURE CORPORATION LIMITED V03.SI

Venture Corp - Strong Growth Momentum To Continue

  • 2H historically stronger than 1H.
  • Revising upwards our estimates.
  • Reiterate BUY on higher FV.

Earnings driven by revenue growth and margins expansion 

  • Venture Corporation Ltd (VMS) has consecutively posted strong double-digit YoY revenue growth over the past three quarters, driven by higher demand in its Test & Measurement/ Medical & Life Science/ Others (TMO) segment, especially medical and life sciences related equipment, as well as its Networking & Communications (N&C) segment given the world’s increasing need for wider network connectivity at higher speeds.
  • More impressively, VMS’s PATMI has over the past eight quarters recorded double-digit YoY growth, with the most recent 2Q17 PATMI surged 61.0%, driven by margins expansion in addition to higher sales. 
  • And since FY12, VMS has consistently posted stronger 2H results compared to 1H, as its customers increase spending nearer to end of each calendar year, and we expect this trend to continue in FY17.
  • Hence, based on above, we are raising our FY17–FY21 PATMI forecasts by 10%–15%.

Share buybacks by CEO a positive signal 

  • Venture Corp (VMS)’s CEO, Mr. Wong Ngit Liong, has been exercising his employee share options and making open market share purchases on numerous occasions. More specifically, Mr. Wong spent:
    1. ~S$2.1m to purchase 166,300 shares at an average cost of S$12.51/share on 14 July, 
    2. ~$1.3m to purchase 105,300 shares at an average cost of S$12.52/share on 17 July, and
    3. ~S$6.1m to purchase 400,000 shares at an average cost of S$15.26/share on 12 Sep. 
  • Over these three occasions, Mr. Wong spent a total of S$9.5m in open market purchases of VMS’s shares. In our view, these transactions provide a very clear positive signal of his confidence over where he believes the company is heading towards.

Potential upside to dividend yield 

  • Consequently, as we factor in for a stronger 2H in FY17 on the back of continued margins expansion, our DCF-derived Fair Value Estimate increases from S$14.80 to S$20.33. 
  • Reiterate BUY on VMS.
  • Given its outstanding results for the past few quarters, solid balance sheet and sanguine outlook, we believe there is much scope for VMS to potentially increase its dividend, which has ranged between S$0.50 to S$0.55/share since FY08.

Eugene Chua OCBC Investment | 2017-10-12
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 20.33 Up 14.800