Venture Corporation - CGS-CIMB Research 2019-07-12: Short-Term Outlook Could Be Challenging


Venture Corporation - Short-Term Outlook Could Be Challenging

  • We think Illumina’s guidance cut confirms our fears that Venture Corp (SGX:V03) could see an earnings decline in FY19F.
  • We cut our earnings by 11-12% over FY19-21F to reflect the cautious and uncertain environment amongst corporates, affecting end-demand.
  • Maintain HOLD with a lower Target Price of S$15.73.

Illumina halves FY19 revenue growth expectation

  • Illumina (ILMN) has cut its FY19 revenue growth expectations to 6% versus 13- 14% in Apr 2019. The cut reflects non–instrument related factors and a delay in a program with a partner that is now expected to ramp in 2020.
  • Illumina expects NovaSeq system shipments which is of relevance to Venture Corp, to be flat to slightly up compared to FY18. Investors can get more clarity on the substantial cut in growth expectations on Monday, 29 Jul, 5.00pm US Eastern Time when Illumina hosts its 2Q19 results call.

Illumina points to a tough FY19

  • Illumina’s products are supposedly more resilient given that they are not discretionary consumer electronics items. We think the lowering of guidance by Illumina is proof that the uncertainties and cautiousness caused by US-China tensions are affecting end-demand.

Semi dip in 2019 recover

  • The World Semiconductor Trade Statistics (WSTS) May 2019 forecasts sees the worldwide semiconductor market falling 121% in 2019 before recovering by 5.4% in 2020. Even though the decline is driven by a projected 306% y-o-y dip from the memory segment, it still does reflect slower demand for semiconductors globally.

Cutting our expectations

  • We cut our Venture Corp's core EPS by 11-12% over FY19-20F to reflect growing earnings concerns arising from macro conditions. At an unchanged 12.5x CY20 P/E (0.5 s.d. below the 12- year forward average P/E of 15.4x), our target price falls to S$15.73.
  • Potential catalysts are new product launches by customers. Downside risk: slower orders from customers. Venture reports its 2Q19 results on 8 Aug.

Long-term technical view is bearish

  • On the charts, the sharp drop in Venture's share price over the past three falling to a low of 34, nearing the oversold price could test the 14.63 – 14.50 key support area next before a rebound takes over.
  • The long-term technical trend remains bearish. We expect the 15.55 – 16.07 resistance cap the upside move in the rebound.

William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-12
SGX Stock Analyst Report HOLD MAINTAIN HOLD 15.73 DOWN 17.880