Venture Corp - OCBC Investment 2018-03-01: Scaling Greater Heights

Venture Corp - OCBC Investment 2018-03-01: Scaling Greater Heights VENTURE CORPORATION LIMITED V03.SI

Venture Corp - Scaling Greater Heights

  • Spectacular FY17 results.
  • Proposed dividend of S$0.60 for FY17.
  • Impressive margins to sustain ahead.

FY17 results exceeded expectations 

  • Venture Corporation Ltd (VMS) delivered a stellar set of results as 4Q17 PATMI surged 164.5% y-o-y to S$143.0m on the back of a solid 27.1% growth in revenue to S$1.09b. 
  • Revenue growth was driven by a diversified revenue base, continuing strong execution of customers’ programmes and deepening of collaborative partnership with strategic customers. 
  • In-line with revenue growth, 4Q17 operating expenses grew 17.5% y-o-y to S$931.4m, attributable mainly to increase in changes in finished goods, work-in-progress and raw materials used, as well as employee benefits expense. 
  • For FY17, VMS’ revenue grew 39.3% to S$4.0b while operating expenses rose 34.2% to S$3.58b on similar reasons as 4Q17. Consequently, adjusting for one-offs, VMS’ FY17 core PATMI beat our expectations as it jumped 74.5% y-o-y to S$361.6m, which formed 115% of our estimate.

Sustainable growth built upon customer stickiness 

  • Looking ahead, we believe VMS’ growth will be sustainable given its relentless pursuit to create value through deep collaboration with customers. By providing research & development (R&D) services, VMS has been and we believe will be able to continue to ensure customer stickiness.
  • When customers leverage on VMS’ R&D capabilities to perform design work, VMS is usually involved in the sourcing and manufacturing process, translating to strong sustainable margins and recurring orders from customers since the manufacturing know-how sits with VMS. As result, VMS’ focus to continue to grow its talent pool will be a factor to drive growth through increased R&D work. 
  • The ongoing productivity drive, building of advanced manufacturing capabilities, strong sourcing capabilities and disciplined cost management will also contribute positively to the margins. In addition, we expect VMS’ strategy to continue pursuing deep collaborative alliances with leaders in fast-growing technology domains of interest will result in persistent top-line growth.

Higher Fair Value of S$34.00 on sanguine outlook 

  • On above expectations FY17, and aforementioned reasons, we adjust our forecasts upwards significantly, as well as roll-forward our valuations. Consequently, we increase our Fair Value for VMS from S$23.00 to S$34.00.
  • (Maintain BUY)

Eugene Chua OCBC Investment | 2018-03-01
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 34.00 Up 23.000