Venture Corporation - OCBC Investment 2019-11-11: Taking A Breather

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VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Taking A Breather

• Cloudy outlook ahead.
• Pushing out expectations.
• Lower Fair Value of S$17.45.

In-line scorecard

• VENTURE CORPORATION (SGX:V03)’s 3Q19 results were broadly in-line. Revenue grew 12.8% y-o-y to S$869.1m, or -3.8% on a sequential basis. As is the case since 1Q19, R&D expense remained low (-54.6% y-o-y) and there was also a S$1.2m tax write-back in the quarter. See Venture Corp Announcements.
• Taking one-offs into account, core PATMI came in at S$81.0m, forming 22% of our full-year forecast. Core net profit margin came in at 9.3%, which is notably weaker than prior quarters.
• On a 9M19 basis, free cash flow grew 33.2% to S$337.7m, which gives us confidence that Venture Corp will at least be able to maintain DPS at 70 S-cents for FY19. See Venture Corp Dividend History.

Short-term catalysts now pushed out

• Venture Corp has noted that it will be supporting several partners in their new and key product launches over the next 12 months. In our view, this pushes out our initial expectations for new product launches in 3Q19, followed by ramp-ups in 4Q19.
• Management has noted that uncertainties in the business and geopolitical environment may remain unabated, which makes for a cloudy 4Q19 ahead. With customers likely to take a wait-and-see approach, 2H would likely be weaker than 1H, in our view, thereby bucking the typical seasonality trend.
• While we believe that Venture Corp will continue to benefit from ‘hastened efforts’ by OEMs in shifting their supply chain flows for tariff mitigation, we believe that these might not show up materially in the short term.

Stay cautious

• We still believe that the longer-term outlook for Venture Corp remains robust, as it continues to broaden its ability to create and capture value through new ecosystems, leveraging its Clusters of Excellence.
• Despite softer margins this quarter, Venture Corp is still able to consistently outperform its peers on a NPM basis. However, we believe that investors should wait for a better entry point.
• We trim our FY19/20 PATMI estimates by 4.1%/4.4%, respectively, and roll forward our valuations to FY20. Based on a 13.6x target P/E (0.25 S.D. below the 5-year mean), we derive a Fair Value of S$17.45. See Venture Corp Share Price; Venture Corp Target Price.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-11-11

SGX Stock Analyst Report HOLD DOWNGRADE BUY 17.45 SAME 18.420