Venture Corporation - CGS-CIMB Research 2019-08-08: 2Q19 Better Than Expected

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VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - 2Q19 Better Than Expected

• VENTURE CORPORATION (SGX:V03)'s 2Q19 core net profit of S$90.8m was 11% above our S$81.8m forecast. 1H19 core net profit formed 53% of our full-year estimate.
• Revenue declined 5.1% y-o-y in 2Q, partially cushioned by better tax efficiency, lower operating costs and a 74% reduction in R&D expenses.
• An interim DPS of S$0.20 was declared.
• Though there are risks to the pace and success of new product introductions in 2H19F, we now assume its 2H19F will be as strong as its 1H.
• Upgrade to ADD with a new Target Price of S$16.28.

Venture Corp's 2Q19 core net profit declined 7.3% y-o-y, still better than expected

• Venture Corp's 2Q19 sales fell 5.1% y-o-y. We understand that the revenue decline was mainly due to the payment systems business segment. Lower operating expenses (especially the 74% y-o-y decline in R&D expenses) and a lower effective tax rate of 13.7% (2Q18: 15.0%, 1Q19: 14.5%) helped its bottomline.
• Venture Corp remains in a net cash position and an interim DPS of S$0.20 was declared.

Near-term headwinds

• The impact of the trade war between US and China remains a business risk in 2H19F. We now assume that Venture Corp's 2H19F performance will at least match that of its 1H19. Historically, its 2H is typically stronger than 1H.
• The key risk to our assumption are delays to its customer’s product launch schedules in response to geo-political risks.

Long-term opportunities

• Venture Corp continues to highlight opportunities in the life sciences/oncology space. We believe the group has been building up its human talent in this space in addition to its traditional strength in engineering and manufacturing.
• Also, as the manufacturing supply chain responds to the ongoing US-China trade war, there could still be incremental revenue opportunities for products that Venture Corp can create value for, for its customers.

Upgrade to ADD

• We believe our previous concern of a weaker 2H19 has been priced in. Other than the unpredictability of its customers’ product launches in 2H19F, we now think that its 2H19F performance could mirror its 1H19's. As such, we revise up our FY19-21F EPS forecasts.
• Our Target Price rises to S$16.28, still based on 12.5x P/E (0.5 s.d. below the 12-year forward average P/E of 15.4x). We upgrade Venture Corp to an ADD.
• The biggest risk to our assumptions are delays or pullbacks in its customers planned product launches in 2H19F due to geo-political risks.
• Potential re-rating catalysts are new product launches by its customers. Slower orders from customers are a key downside risk.

William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-08-08

SGX Stock Analyst Report ADD UPGRADE HOLD 16.28 UP 15.730