Venture Corporation - RHB Invest 2019-04-26: Recovery Intact But Fairly Valued


Venture Corporation - Recovery Intact But Fairly Valued

  • Downgrade to NEUTRAL, SGD19.00 Target Price offers 1.5% downside.
  • VENTURE CORPORATION LIMITED (SGX:V03) saw a V-shaped recovery in 4Q18, with revenue growing q-o-q and y-o-y. PATMI grew 8.6% y-o-y, ie in line.
  • Management guided that tailwinds outweigh headwinds, and new product launches in 2H19 should mitigate near-term volatility from product transitions. Venture's share price has recovered, surging above our target price, and valuations at these levels are fair. This, together with uncertainties in 2H, rationalise our rating downgrade.

V-shaped recovery intact.

  • Both topline and bottomline grew 8.5% y-o-y in 1Q19. The company’s net margin was also stable, at 9.8%. We understand this positive performance is likely due to the spill-over effect of customers launching new products at the tail-end of 4Q18, as well as those launching new products in1Q19.

Long-term strategy has kicked in.

  • Venture Corp will focus on enhancing its globally-linked clusters of excellence. It aims 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.
  • Venture Corp is also looking to focus on working with customers over the long term, rather than on an ad hoc basis. With that, margins are likely to continue improving in the next few years.

Healthy FY19F dividend of SGD0.70.

  • Management declared a total DPS of SGD0.70 for FY19, implying a 55% payout of its NPAT.
  • Management also guided that it is looking to pay out sustainable dividends and we expect FY19 dividends to be likely the same or higher than of FY18, resulting in a FY19F yield of at least 3.6%.

Fairly valued at current levels.

  • Venture Corp will continue to focus on its long-term strategy and build its ecosystem to foster long-term growth. Contributions from new customers won in past years are also expected to grow y-o-y in 2019.
  • However, the mixed business sentiment across its diversified customer base also compels management to keep a watchful eye on the overhang of several macroeconomic headwinds. We feel that, at current price levels, the stock is fairly valued.
  • Key risks are slowing economic growth and the worsening of the US-China war.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-04-26
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