Venture Corp (VMS) - UOB Kay Hian 2019-04-26: 1Q19 Near-Term Volatility To Be Mitigated By New Launches In 2H19

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VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corp (VMS) - 1Q19: Near-Term Volatility To Be Mitigated By New Launches In 2H19

• Venture Corporation's 1Q19 net profit of S$90.9m (+8.5% y-o-y) is in line with our expectations and consensus, forming 24-25% of both expectations.
• Near-term outlook could be volatile due to some costumers’ transitions but this will be mitigated by new product launches in 2H19.
• We raised our 2019F EPS by 5% and increase our target price by 15% to S$19.01, pegged to the long-term PE mean of 14.1x (up from 12.7x). Maintain HOLD.

VMS' 1Q19 RESULTS

1Q19 net profit of S$90.9m within expectations.

• VENTURE CORPORATION LIMITED (SGX:V03) reported 1Q19 net profit of S$90.9m (+8.5% y-o-y), in line with our and consensus’ expectations at 24-25% of both.
• Net margin remained unchanged at 9.8%, where the increase in raw materials costs was offset by a decline in research and development expense.

Revenue growth of 8.5% y-o-y driven by broad-based growth.

• Revenue growth was driven by broad-based growth. We believe several new projects started in 2H19 also contributed to the growth.

Near-term volatility to be mitigated by new products launch in 2H19.

• Due to some customers’ product transitions, Venture Corporation cautioned of potential near-term volatility. However, this is expected to be mitigated by customers’ new product launches in 2H19, such as in the test and measurement as well as the life sciences industry.

STOCK IMPACT

Expect near-term volatility but mitigated by longer-term positive outlook.

• We expect some near-term volatility to stock price as we expect 2Q19 to be weaker y-o-y, before seeing improvement in 2H19 from new product launches.

EARNINGS REVISION/RISK

Earnings forecasts raised slightly, factoring in new product launches in 2H19.

• We raise our earnings estimates slightly for 2019, 2020 and 2021 to S$388m (+5%), S414m (+11%) and S$440m (+17%) respectively.

VALUATION/RECOMMENDATION

Maintain HOLD

• Maintain HOLD with a revised target price of S$19.01, as we factor in a 5% increase in our 2019F EPS and a higher PE target for 2019F, based on the long-term PE mean of 14.1x (up from 12.7x). This is to capture the better long-term prospects for new product launches in 2H19.

SHARE PRICE CATALYST

• Better-than-expected net profit.
• Higher-than-expected dividend.
• Potential EPS accretive acquisitions.

John Cheong UOB Kay Hian Research | Joohijit Kaur UOB Kay Hian | https://research.uobkayhian.com/ 2019-04-26

SGX Stock Analyst Report HOLD MAINTAIN HOLD 19.01 UP 16.50