Venture Corporation - RHB Invest 2019-11-11: Decent 3Q19 But Murky Outlook Ahead


Venture Corporation - Decent 3Q19 But Murky Outlook Ahead

  • Downgrade to NEUTRAL from Buy with Target Price maintained at SGD16.30, 2% downside.
  • Despite the US-China trade war still ongoing, Venture Corp has managed to deliver decent 3Q19 results with PATMI rising 5.7% y-o-y, in line with our estimates. However, we expect a weaker 4Q19 vs 4Q18.
  • With its share price reaching above our Target Price, we downgrade Venture Corp’s call but keep Target Price at SGD16.30, pegged to 13x FY19F P/E while awaiting for a clearer outlook for FY20F. See Venture Corp Share Price; Venture Corp Target Price.

Decent 3Q19 but weaker 4Q19F YoY expected.

  • Venture Corp (SGX:V03) enjoyed a strong 3Q19 y-o-y mainly due to a weaker 3Q18. See Venture Corp Announcements.
  • Going forward, management guided that uncertainties in the business and geopolitical environment may remain unabated and it will continue to support several partners in their new and key product launches over the next 12 months. However, as it enjoyed a strong 4Q18, we are expecting a weaker 4Q19 due to the current macroeconomic environment and uncertainties resulting from the trade war.

Long-term strategy still intact.

  • Venture Corp 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 in the years ahead. 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 SG cents likely maintained.

  • Management declared a total DPS of 70 SG cents for FY18, implying 55% payout of its NPAT. Management guided that it is looking to pay out sustainable dividends and we expect FY19F dividends to be likely the same or higher than of FY18, that should result in a FY19F yield of at least 4.7%.
  • Venture Corp declared the same interim dividend of SGD0.20 for 1H19 vs 1H18. See Venture Corp Dividend History.

Outlook still challenging and does not warrant upside rerating.

  • Venture Corp 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 2019F but that could be impacted negatively by the ongoing US-China trade dispute.
  • With macroeconomic uncertainties and headwinds still ongoing despite some positive news from the trade war recently, we believe that outlook will remain challenging and does not warrant upside rerating.
  • Key risks – slowing economic growth, and the US-China trade war worsening.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | 2019-11-11
SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 16.300 SAME 16.300