VENTURE CORPORATION LIMITED (SGX:V03)
Venture Corporation - Opportunity Knocks For Long-term Investors
- Venture Corp's 3Q19 core net profit of S$85.2m was 5.4% above our S$80.8m forecast. 9M19 core net profit formed 76% of our full-year estimate.
- There are still headwinds and uncertainties over the next twelve months, but opportunities in supply chain shifts and new product launches are also intact.
- Downgrade to HOLD from Add. Target Price rises to S$16.88 as we roll over to FY21.
Venture Corp's 3Q19 results largely in line
- VENTURE CORPORATION (SGX:V03)'s 3Q19 sales rose 12.8% y-o-y while reported net profit (RNP) grew 5.5% y-o-y. 9M19 RNP was 76% of our/consensus estimates, higher than the historical trend over the past six years. 3Q19 RNP was 5.4% above our core net profit forecast of S$80.8m. See Venture Corp Announcements; Venture Corp Latest News.
- If we adjust for S$3.2m in foreign exchange gain and a S$1.2m write-back of over provision of tax, Venture Corp’s RNP would be in line with our expectations.
3Q19 results takeaways
- Margin pressure – this can be seen in the gross material margins as well as the pre-tax level. Margins have been affected by competition and pricing pressure and could have been worst if not for Venture Corp’s culture of driving productivity and operational efficiencies.
- Balance sheet remains strong with free cashflow of S$96.5m generated for the quarter. Shareholders may raise the possibility of a higher dividend given the cash balance of S$804m and strong free cashflow generation.
We expect earnings weakness in 4Q19
- We maintain our view that 2H will be weaker than 1H. Our 4Q19 core net profit estimate of S$85.5m implies q-o-q growth of 0.4% and y-o-y decline of 21%. We believe consensus earnings for FY19 will need to be reduced to reflect 2H weakness.
FY20 could still be a challenge
- Venture Corp sees uncertainties in the business and geopolitical environment unabating over the next twelve months. There are still opportunities given
- hastened efforts by companies to relocate supply chains for tariff mitigation and
- new and key product launches by several partners over the next twelve months.
- The longer-term outlook is less concerning as Venture Corp remains focused on its strategy of value creation, which justifies its higher-than-peers’ margins.
- We remain cautious in our FY20-21F earnings forecasts which assume low single-digit growth as Venture Corp’s customers launch new products. We cut FY20-21F earnings slightly to reflect these challenges.
Downgrade to HOLD
- Our Target Price rises to S$16.88 (still based on 12.5x P/E which is 0.5 s.d. below the 12-year forward average P/E of 15.4x) as we roll over to FY21. See Venture Corp Share Price; Venture Corp Target Price.
- Potential rerating catalysts are successful new product launches by its customers, while slower orders from customers is a key downside risk.
William TNG CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2019-11-08
SGX Stock
Analyst Report
16.880
UP
16.280
