Venture Corp - RHB Invest 2018-03-01: Another Stellar Quarter

Venture Corp - RHB Invest 2018-03-01: Another Stellar Quarter VENTURE CORPORATION LIMITED V03.SI

Venture Corp - Another Stellar Quarter

  • Venture reported a superb 4Q17, surging 164.5% y-o-y to SGD143m. It also enjoyed significantly better margins, due to effective strategies and higher design content in its manufactured products. 
  • Going forward, management has yet to notice any signs of slowdown. In addition, it also expects net margins to stay around 7-10%. 
  • With a more positive outlook ahead, we raise our FY18F-19F NPAT by 20% and 15% respectively, resulting in a higher DCF-backed Target Price of SGD30.50 (from SGD24.10, 11% upside), implying 19x FY18F P/E. Maintain BUY.

Revenue growth likely to continue in 1Q18. 

  • Venture Corp (Venture) has over 180 customers, of which, > 75% saw topline grow y-o-y, which impacted it positively. 
  • The company has also been focused on product leaders in their respective target markets that also benefit its topline, especially those involved with products that have more design content. As a result, PBT margins surged to 15.5% y-o-y from 7.6% in 4Q17.

Forging tight partnerships with key leaders in this ecosystem. 

  • A deep relationship with key partners and customers enables Venture to earn their trust and confidence. This enables the company to get more projects, and be involved in more parts and processes of the products being made. 
  • It is also focused on value creation, which would benefit its customers by lowering product cost and at the same time, increase its margins.

Margins likely maintained – moving towards the OEM model. 

  • Venture has tweaked its business model – to shift from a lower-margin pure electronics manufacturing services (EMS) player to an original equipment manufacturer (OEM). It is also focusing on projects with better margins, instead of focusing on just pure revenue growth. 
  • In addition, it has been improving its operational capabilities with research & development (R&D), as well as hiring more talented and effective personnel. This strategy has resulted in its net margin surging to 13.2% in 3Q17 (3Q16: 6.3%). 
  • Going forward, we expect net margins to range around 7-10%.

Higher dividends of SGD0.60 declared. 

  • With the strong earnings growth in FY17F, venture declared higher dividends of SGD0.60 from the usual SGD0.50.
  • This however falls short of our expected dividends of SGD0.80. Management has highlighted that it would likely increase dividends slowly over time but we do feel the company has the balance sheet and strong cash flow to pay higher dividends going forward.

Maintain BUY. 

  • Going forward, signs of a slowdown are still yet to be seen. With the bright outlook ahead, coupled with excess capacity to grow, we expect NPAT growth to continue, albeit at a slower pace, and margins improvement to sustain. As a result, we raise our FY18F-19F earnings estimates by 20% and 15% respectively, resulting in a higher DCF-backed Target Price of SGD30.50.

Jarick Seet RHB Invest | 2018-03-01
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 30.50 Up 24.100