Venture Corp - RHB Invest 2018-04-26: The Smoke Has Cleared

Venture Corp - RHB Invest 2018-04-26: The Smoke Has Cleared VENTURE CORPORATION LIMITED V03.SI

Venture Corp - The Smoke Has Cleared

  • Venture's 1Q PATAMI surged 72.2% y-o-y, while net margin expanded to 9.8% (from 5.8%) despite the weakening USD.
  • Seasonally, 1Q is the weakest quarter, making up < 20% of its PATAMI, so we expect margin expansion to continue for subsequent quarters. However, we are cautious of the slowdown in the electronics and semiconductor industry and trim FY18F earnings by 5%. This results in a lower Target Price of SGD26 (from SGD30.50, 15% upside), pegged to a lower 17.2x P/E (from 19x).
  • However, we think that the selldown is overdone and maintain our BUY call.

ZTE and Oclaro not impactful.

  • Venture Corp (Venture) management has mentioned that ZTE and Oclaro form only a small percentage of its revenue and would not be impactful as a whole to earnings, due to its well-diversified customer base of over 150+ customers.

Better results if not for a weakened USD.

  • Venture, along with its peers, was impacted negatively by the weakened USD
  • 1Q18 revenue would have otherwise grown 9.1% instead of the reported 1.5%. Profitability would also have been much better. Despite that, however, Venture still managed to report a decent set of results.

Margin expansion likely to continue in subsequent quarters.

  • This would be due to Venture’s previous R&D efforts for a more efficient manufacturing line, as well as being more involved in the design of its customers’ products. 
  • We expect more value creation to be created through engineering design and development, increased operational efficiency, and judicious cost management.

Growing through existing customers and getting new engagements.

  • Venture has been exploring new growth through existing customers that are involved in different types of products in other divisions. It hopes to entrench itself and deepen engagement with its customers, which would likely result in increased revenues. 
  • Venture also plans to grow its pool of strategic partnerships and its technological diversity, by expanding into new and adjacent ecosystems.

Sector outlook dampens – Venture one of the few beacons.

  • Going forward, the signs of slowdown have appeared in some of its peers, as well as in the semiconductor industry. It has not affected Venture yet, partially, in our view, due to its well-diversified client base.
  • However, to be prudent, we do expect a slowdown in 2H18. We thus lower our FY18 PATAMI estimate by 5% and our P/E to be pegged to 17.2x (instead of 19x). As a result, we lower our Target Price to SGD26
  • However, with Venture, one of the few in the Singapore tech sector reporting a positive 1Q18, we consider the selling over the past few days to be overdone, partially encouraged by a negative short sell report. We believe, however, that the smoke has been cleared and maintain our BUY call.

Jarick Seet RHB Invest | Lee Cai Ling RHB Invest | 2018-04-26
SGX Stock Analyst Report BUY Maintain BUY 26.00 Down 30.500