Venture Corp - OCBC Investment 2019-02-25: Results Spark Joy


Venture Corp - Results Spark Joy

  • V-shape recovery.
  • Stable margins expected.
  • Higher Fair Value of S$20.89.

Firm set of 4Q18 results

  • VENTURE CORPORATION LIMITED (SGX:V03)’s 4Q18 results came in slightly above our expectations.
  • Revenue fell 16.6% y-o-y to SS$905.9m, mainly due to customers’ product transitions and customers’ M&A activities. On a q-o-q basis, revenue grew 17.6% on the back of stronger customer orders, in-line with the anticipated V-shape recovery from the blip in 3Q18.
  • Stripping out one-offs, core PATMI came in at S$109.2m, which was 103.3% of our 4Q18 forecast. Despite revenue declining y-o-y, the group’s strong cost management and high value creation were reflected in its margins; PBT and core PATMI margins grew 1.5%pt and 1.7%pt q-o-q to 13.7% and 12.1%, respectively.
  • Venture Corp has proposed a final dividend of 50 S- cents/share, taking the full FY18 dividend to 70 S-cents/share (FY17: 60 S-cents/share).

Next stage of growth

  • We note that Venture Corp has garnered interest from customers who are interested in having their production done out of Southeast Asia rather than in China due to the ongoing US-China trade spat. Moving forward, we believe that the q-o-q benefit from new product launches witnessed in 4Q18 will spill over into 1Q19.
  • In order to keep profitability and margins on a sustainable trajectory, management noted that it will look to broaden its ability to create and capture value by creating new ecosystems, leveraging its Clusters of Excellence. To that end, management shared that it could look to acquire targets that offer a strategic talent pool in order to achieve its next phase of growth.
  • In addition, management will continue to keep a judicious eye on cost, which we believe will involve automation, process streamlining as well as a nimble headcount approach.

15x P/E peg

  • We roll forward our valuations, and maintain our P/E target of 15.0x, which is ~0.5 S.D. above Venture Corp’s 5-year mean. Venture Corp’s peers trade at an implied target forward P/E of 9.7x – 15.8x.
  • Given Venture Corp’s net cash position and stronger-than-average margins, we continue to believe that our 15x multiple is not unreasonable. Thus, our fair value increases from S$20.13 to S$20.89.

Joseph Ng OCBC Investment Research | 2019-02-25
SGX Stock Analyst Report BUY MAINTAIN BUY 20.89 UP 20.130