Venture Corporation - RHB Invest 2019-08-13: New Product Ramp-Up In 4Q19; Upgrade To BUY


Venture Corporation - New Product Ramp-Up In 4Q19; Upgrade To BUY

  • Upgrade to BUY from Neutral, Target Price maintained at SGD16.30, 10% upside with 4.7% FY19F yield.
  • Despite worsening tensions between the US and China, Venture Corporation (SGX:V03) delivered flat y-o-y earnings in 1H19 – in spite of its weaker 2Q19 numbers.
  • Management guided that there will be a few NPIs that should kick in by end-3Q19, and a ramp-up in production will likely happen in 4Q19, which should benefit margins in 2H.
  • Our Target Price is pegged to 13x FY19F P/E.

Weak 2Q19 expected but better outlook ahead.

  • We note that Venture Corporation’s global peers have been impacted by the trade war, and their financials have softened. As such, we expect profitability to be negatively impacted in the coming quarters, especially in 2Q19.
  • Meanwhile, management expects the volatile economic environment to persist, but has several initiatives in place to help Venture Corporation weather related near-term challenges. This, together with a few new product introductions scheduled for 3Q-4Q, leads us to expect a better outlook for the company ahead.

Long-term strategy still intact.

  • Venture Corporation 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. Management believes this will broaden its value creation along multiple pathways to chart future growth.
  • It is also looking to focus on working with customers over the long term, rather than on an ad hoc basis.

FY19F DPS of 70 cents likely to be maintained.

  • Management declared a total DPS of 70 cents for FY19, implying a 55% payout ratio 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 4.7%.
  • Venture Corporation also declared an unchanged interim DPS of 20 cents for 1H19. See Venture Corporation's dividend history.

Upgrade to BUY on brighter skies.

  • Venture Corporation 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, but this could be impacted negatively by the ongoing trade dispute between China and the US.
  • With NPIs from new customers and existing customers in 2H19, coupled with the recent sizeable share price correction to its current levels, we upgrade Venture Corporation to BUY with an unchanged Target Price of SGD16.30.
  • Key risks are slowing economic growth and a worsening of the US-China trade war.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | 2019-08-13
SGX Stock Analyst Report BUY UPGRADE NEUTRAL 16.300 SAME 16.300