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

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).

On track for a strong finish to FY17 

  • 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.

Why the US property acquisition is significant 

  • 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.

Partnering US corporates for growth 

  • 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.

Signalling effect from FY17 DPS 

  • 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.

Raising target price to S$29.13 

  • 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 | 2018-02-08
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 29.13 Up 24.740