Venture Corporation - CIMB Research 2018-02-08: What’s Next After A Record Year?

VENTURE CORPORATION LIMITED V03.SI

Venture Corporation - What’s Next After A Record Year?

We expect Venture to beat FY17 consensus forecasts when the company reports its results on 28 Feb 2017.
The recent acquisition of a freehold property in the US will help Venture build its cluster of excellence in the US.
Venture will benefit from proximity to customers and targets new technologies/products from US customers.
Investors should also watch for signalling effect from FY17 dividends.

We raise our target price due to our more optimistic forecasts and a higher P/E target of 17.7x (0.5 s.d. above its 11-year historical average P/E of 15.5x).

Preliminary estimates released by the US government showed that the nation’s output increased at an annual rate of 2.6% in 4Q17. With many of Venture’s customers being US corporates, we believe Venture is on track for a strong finish to FY17.
To recap, 9M17/3Q17 net profits were S$229.8m/S$111.4m.
We believe FY17 consensus net profit of S$327.8m will be beaten and have raised our FY17 net profit forecast by 5.1% to S$352.5m.

On 18 Jan, Venture announced the acquisition of a property located in Milpitas, California, USA, for US$29.4m. This is Venture’s first substantial investment in the US in monetary terms and represents the company’s commitment to augmenting its cluster of excellence in the US.
The property to be acquired is not small, comprising a freehold estate with a land area of 9.64 acres and an industrial building with a built-up area of approximately 182,405 square feet.

Upon the completion of the acquisition of this property, Venture intends to renovate the facility to meet its objective of offering a new platform enterprise to forge new alliances, partnerships and ventures that will allow the group to take part in advanced new technologies and business from US corporates.
We believe the facility will eventually offer a mix of prototyping and high-mix, low-volume production.

Venture is likely to pay a higher DPS when FY17 results are announced. We have assumed that DPS will be S$0.60 (S$0.50 per its track record and S$0.10 arising from the sale of its stake in an investment).
We believe investors will pay particular attention to whether the FY17 DPS will be framed as a base final DPS and a special DPS or just a final DPS. Terming it a final DPS would lend further support to our optimistic earnings forecast.

Our faith in the current momentum where revenue per quarter is expected to cross the S$1bn mark drives our new FY17-19F forecasts.
We now use a higher P/E of 17.7x (0.5 s.d. above its 11-year historical average P/E of 15.5x) on our lifted FY19F EPS forecast, leading to a higher target price of S$29.13. Previously, we used 17.3x P/E (0.5 s.d. above its 10-year historical average of 15.2x).
Downside risks are a slowdown in customer orders and weaker US$ versus the S$.

William TNG CFA CIMB Research | http://research.itradecimb.com/ 2018-02-08

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 29.13 Up 24.740