VENTURE CORPORATION LIMITED (SGX:V03)
Venture Corporation - Cautious On FY20F
- We expect VENTURE CORPORATION (SGX:V03) to report a 4Q19 core net profit of S$85.5m, up 0.4% q-o-q but down 21% y-o-y.
- There are still headwinds and uncertainties over the next 12 months but opportunities in supply chain shifts and new product launches remain intact.
- We have a HOLD call on Venture Corp, with a Target Price S$16.88.
Cautious vibes from 3Q19 results
- Venture Corp reported its 3Q19 results on 8 Nov 19. Its 3Q19 sales rose 12.8% y-o-y while its reported net profit (RNP) grew 5.5% y-o-y.
- There were signs of margin pressure in the 3Q19 results due to competition and pricing pressure, which could have been worse if not for Venture Corp’s culture of driving productivity and operational efficiencies.
- We maintain our view that 2H19 will be weaker than 1H19. Our 4Q19 core net profit estimate of S$85.5m implies 0.4% q-o-q growth and a 21% y-o-y decline.
Strong balance sheet
- Venture Corp’s balance sheet remains strong, with free cash flow of S$96.5m generated for the third quarter.
- A strong balance sheet (S$804m cash balance) and strong free cash flow generation allow Venture Corp the leeway to raise dividends.
FY20F outlook is cautious
- Venture Corp believes the uncertainties in the business and geopolitical environment will continue unabated over the next 12 months.
- There are still opportunities given:
- the hastened efforts by companies to relocate their supply chains for tariff mitigation (given the ongoing US-China trade war), and
- the new and key product launches by several partners over the next 12 months.
- The longer-term outlook is less concerning as Venture Corp remains focused on its strategy of value creation, which justifies its higher-than-peer margins.
- We remain cautious in our FY20-21F earnings forecasts, which assume low single-digit growth as Venture Corp’s customers launch new products.
Maintain HOLD
- Our Target Price of S$16.88 is based on a 12.5x P/E multiple (which is 0.5 s.d. below the 12-year forward average P/E of 15.4x) on its FY21F core EPS forecast. See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
- Potential re-rating catalysts include successful new product launches by its customers while slower orders from customers are a key downside risk.
William TNG CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2019-12-09
SGX Stock
Analyst Report
16.880
SAME
16.880
