Venture Corporation - RHB Invest 2019-02-26: V Shape Recovery Ahead


Venture Corporation - V Shape Recovery Ahead

Maintain BUY and Target Price of SGD19.00, 18% upside plus 7% yield.

  • With the V-shape recovery intact, we believe that VENTURE CORPORATION LIMITED (SGX:V03) will likely continue to enjoy positive growth in the next quarter and the long term, if its strategy works out well.
  • Higher dividends are also likely, as the payout ratio is only at 55%, despite a net cash position of SGD711m.
  • Any positive news on the US-China trade talks should also be a positive for the company.

V shape recovery intact.

  • Venture Corp reported a better than expected 4Q18, with PATMI coming in at SGD107.6m, higher than consensus estimates of SGD100m. Revenue also picked to SGD905.9m, compared to SGD770m in 3Q18.
  • Net margins were also healthy at 11.9%. We understand this positive performance is likely due to the few new customers it has managed to secure, as well as a few new product introductions in 4Q18.

Healthy FY18 dividend.

  • Venture Corp declared a final dividend of SGD0.50, which, combined with the interim dividend of SGD0.20, represents a total of SGD0.70 for FY18 (+16.7% y-o-y) and represents a payout of 55% of its NPAT.
  • Management guided that it is looking to pay out sustainable dividends and we expect FY19 dividends to be likely the same or higher, resulting in a FY19F yield of at least 4.3%.

Long term strategy has kicked in.

  • Venture Corp would focus on enhancing its globally linked clusters of excellence and aim to develop several dynamic ecosystems, as well as serve new markets in selected technology domains in the years ahead.
  • Management believes this will broaden its value creation along multiple pathways to chart future growth. It is also looking to focus on working with customers over the long term, rather than on an adhoc basis. With that, margins are likely to continue to improve in the next few years.

Q-o-Q growth possible for 1Q19.

  • With more new product introductions to be launched in 1Q19 and a further ramp up of products launched in 4Q18, we expect a possible q-o-q growth for 1Q19.
  • On top of that, some of the products launched in 4Q18 have done well, with overall positive acceptance and some customers even awarding Venture with special accreditation and accolades.
  • Key risks are slowing economy and trade war worsening.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-02-26
SGX Stock Analyst Report BUY MAINTAIN BUY 19.000 SAME 19.000