Venture Corporation - DBS Research 2019-04-26: Growth Path On Track

VENTURE CORPORATION LIMITED (SGX:V03) | SGinvestors.io VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Growth Path On Track

  • Venture Corp's 1Q19 results in line; 8-9% y-o-y growth in revenue and net profit.
  • Life Science, Test, Measurement segment to drive growth.
  • Trade war impact – tailwinds stronger than headwinds.
  • Maintain BUY and S$21.70 Target Price.



Maintain BUY; Target Price S$21.70.

  • VENTURE CORPORATION LIMITED (SGX:V03) stands out for its hard-to-replicate ecosystems and unique positioning at the forefront of technology. Its coveted partnerships with global technological leaders across various attractive end-markets have allowed the group to command industry-leading margins and are testament to its success in the area of value-creation.
  • Meanwhile, record R&D expenses and inventory levels – possible leading indicators for the group - coupled with strong earnings outlook by key customers provides confidence in Venture Corp’s ability to at least sustain its robust growth momentum over the medium term.
  • Maintain BUY.
  • 1Q19 results were decent; net profit gained 9% y-o-y, on the back of an 8% growth in revenue. The growth was across the Group’s portfolio of technology domains, and also from new customers.


Where We Differ:

  • Our street-high estimates reflect our positive view on Venture Corp’s ability to monetise its unique offerings, know-how and hard-to-replicate ecosystems.


Potential Catalysts:

  • New products and continued expansion into non-traditional markets with higher margins, and new customers.
  • Customer M&As and US-China trade developments, while a noise in the near-term, may give rise to new business opportunities ahead.


Valuation:

  • Maintain BUY and S$21.70 Target Price.
  • Our Target Price is pegged to an unchanged valuation multiple of 15.8x PE (based on global peers’ average) on FY19F earnings.


Key Risks to Our View:

  • Weakening client or global growth prospects. A broad global slowdown is likely to impact Venture Corp due to its vulnerability to business cycles. Potential weakening of clients’ end-demand and/or the USD could also dampen revenue growth.


WHAT’S NEW - Decent set of 1Q19 results


1Q19 results in line:

  • Venture Corp reported 9% y-o-y growth in1Q19 net profit to S$90.9m (-16% q-o-q), on 8% higher revenue of S$928.8m (+3% q-o-q). The growth in revenue and profit were on the back of the broad-based growth across the group’s portfolio of technology domains. Venture Corp had also secured several new customers in 1Q19.
  • We expect revenue from new product launches to come in progressively. Net margins of 9.8% for 1Q19 was flat compared to 1Q18 but lower than 11.9% in 4Q18.
  • Results were in line; net profit and revenue accounted for 23%/25% of our FY19F estimates, similar to 1Q18. 1Q is usually the seasonally weaker quarter.

Life Science, Test, Measurement segment to drive growth.

  • Going forward, Venture Corp continues to expand in Life Science segment, and will ride on the strong demand for equipment and product testing. The advancement of technology has led to the demand for more sophisticated and complex equipment.
  • In the case of Genome sequencing, improvement in technology is able to achieve higher accuracy of results, lower costs and shorter test time. Venture Corp has a strong reputation in this area. This would imply more value creation opportunity for Venture Corp as the industry broadens out.


Trade war impact – tailwinds stronger than headwinds

  • The US-China trade war has impacted the global economy, and also the business sentiment of some of Venture Corp’s customers. However, given that only less than 2% of Venture Corp’s total revenue is derived from shipments from China to the US, Venture Corp is not adversely affected by the trade war.
  • In fact, the group could benefit from new business opportunities arising on the back of US-China trade diversions.

Maintain BUY and Target Price: S$21.70.

  • No change to our earnings forecast as we are expecting earnings momentum to pick up in the second half. Existing customers’ new product launches and contribution from new customers is expected to drive earnings higher. Venture Corp’s differentiating strategy and its ability to harness synergies from its collective strengths in operational excellence, R&D solutions and engineering capabilities is poised to drive the group to greater heights.
  • The final DPS of 50 Scts that was declared together with the FY2018 results goes ex-dividend on 10 May 2019. We expect Venture Corp to maintain the full year DPS of 70 Scts for FY19, which works out to a yield of 3.6%, given its strong net cash position of S$805.2m as at end 1Q19.





Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2019-04-26
SGX Stock Analyst Report BUY MAINTAIN BUY 21.700 SAME 21.700



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