Venture Corp - RHB Invest 2017-12-19: Forging Ahead

Venture Corp - RHB Invest 2017-12-19: Forging Ahead VENTURE CORPORATION LIMITED V03.SI

Venture Corp - Forging Ahead

  • Venture Corp reported superb 3Q17 results, accompanied by better margins, due to effective strategies and a higher design content in its manufactured products. 
  • Going forward, management has yet to notice any signs of a slowdown. In addition, it also expects margins to stay around 6-10%. 
  • With a more positive outlook ahead, coupled with excess capacity to grow, we expect strong NPAT growth and margins would likely continue. As a result, we have a BUY based on a DCF-based TP of SGD24.10, implying an 18x FY18F P/E.

Forging tight partnerships with key leaders in this ecosystem. 

  • Deep relationships with its key partners and customers enable Venture to earn their trust and confidence. This has allowed the company to secure more projects, and be more involved in the part and process of the product manufacture. 
  • It has also focussed on value creation, which would benefit its customers by lowering product cost – and at the same time, increasing its margins.

Strong revenue growth likely sustainable in 4Q17. 

  • Venture Corp has over 180 customers, of which, more than 60% saw topline grow YoY, which impacted it positively. The company has also been focusing on product leaders in their respective target markets that also benefit its topline, especially those involved with products that have more design content. 
  • In 3Q17, more than 65% of the product leaders’ revenue had design content, which also provides higher margins.

Margins likely maintained – moving towards the OEM model. 

  • Venture Corp has tweaked its business model to try to shift from being a lower-margin pure EMS player to that of an OEM. It is also focusing on projects with better margins, instead of just pure revenue growth. 
  • In addition, it has also been improving its operational capabilities with R&D, as well as hiring more talented and effective personnel. This strategy has resulted in its net margin improving to 10.5% in 3Q17 (3Q16: 6.7%). As such, we expect net margins going forward to range around 7-10%.

Higher dividends a strong possibility, with proceeds from Fischer Tech Ltd (Fischer Tech). 

  • The sale of Fischer Tech – equivalent to about SGD0.10/share of proceeds entering in 4Q17 – would further boosts its cash pile. 
  • Coupled with a strong forecast earnings growth, we think that higher dividends of SGD0.80/share, compared to the usual SGD0.50, are very possible, resulting in an FY17F yield of 4.1%.

Maintain BUY, with a DCF-based TP of SGD24.10. 

  • Going forward, signs of slowdown are still yet to be seen. 
  • With the bright outlook ahead, coupled with excess capacity to grow, we expect strong NPAT growth and margins would be likely to continue. As a result, we maintain BUY with a DCF-based TP of SGD24.10, implying a 18x FY18F P/E.

Singapore Strategy & Top Picks 2018 - RHB Invest 2017-12-19: There Is Still Potential To Generate Alpha
Venture Corporation is one of the 2018 Top Stock Picks by RHB Invest.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-12-19
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 24.100 Same 24.100