Venture Corporation - CGS-CIMB Research 2019-02-11: Expecting Q-o-q Revenue Growth


Venture Corporation - Expecting Q-o-q Revenue Growth

  • Guided by Venture’s q-o-q revenue growth expectations, we estimate 4Q18 net profit at S$100.7m.
  • Key risk is impact on economic growth from the US-China trade war.
  • Maintain ADD and S$17.44 Target Price based on 12.56x FY20F core EPS.

V-shaped recovery needed to regain investor confidence

  • Given the unexpected earnings miss in 3Q18, Venture will need to deliver on its guidance of a V-shaped recovery for 4Q18 to regain investors’ confidence.
  • We currently estimate 4Q18 net profit of S$100.7m (+ 24.6% q-o-q, -29.6% y-o-y). As at 8 Feb 2019, consensus expectations are for 4Q18 net profit of S$99.9m (+23.6% q-o-q, -30.2% y-o-y). 
  • VENTURE CORPORATION LIMITED (SGX:V03) will report after the market closes on Friday, 22 Feb 2019.

Illumina still has a long run way

  • Illumina (ILMN US) reported y-o-y revenue growth of 21% for FY18. For 1Q19, Illumina guided for revenue to be lower q-o-q but sees FY19 revenue growth at 13-14% y-o-y. The disappointment in Illumina’s FY18 results was the miss in equipment unit shipments. Sequencing systems sales in FY18 were c.315 units (guidance: 330 units).
  • Illumina, however, expects the multi-year upgrade cycle to remain intact as it estimates that at least 75% of its customer base has yet to switch to the current leading product.

Opportunities at Philip Morris (PM US)

  • Philip Morris’s 4Q18 results beat Wall Street consensus estimates. Although PM did not guide for FY19 Heated Tobacco Units volume, it reiterated its previous guidance of 90bn to 100bn unit shipments by FY20. In its earnings call, US analysts asked about the progress of its other product platforms; we think over the next 2 years key focus will remain on IQOS.
  • As at end-4Q18, Philip Morris noted that one-third of its IQOS user base was now in markets outside of Asia (progress was made in the EU region and Russia).

Possible growth drivers

  • Altria Group (MO US) which owns the Philip Morris USA business is establishing brick-and-mortar stores in multiple locations in the US and has already hired personnel to support pre-launch activities for IQOS. Altria is hopeful that IQOS will be approved soon for sale in the US and has included its full roll out in its guidance.
  • Interestingly, looking into the future, Philip Morris believes that it will eventually introduce a device that can be used with different consumables such as e-vapour, heated and even nicotine.

Trade war is key risk

  • Given the risk to global economic growth from the US-China trade war, we reduce our FY20F revenue growth forecast.
  • Our Target Price which is based on 12.56x (0.5 s.d. below 12-year forward average P/E of 15.55x vs. 12.3x P/E or 0.5 s.d. below the 11-year forward average P/E of 15.3x). FY20F core EPS is unchanged.
  • Catalysts are new product launch by customers.
  • Downside risk: slower orders from customers.

William TNG CFA CGS-CIMB Research | 2019-02-11
SGX Stock Analyst Report ADD MAINTAIN ADD 17.440 SAME 17.440