Venture Corporation - Maybank Kim Eng 2020-01-29: Venturing Into A 2H20 Recovery


Venture Corporation - Venturing Into A 2H20 Recovery

Earnings inflection in sight; upgrade to BUY

  • VENTURE CORPORATION (SGX:V03)’s customers appear more positive towards 2020 than 2019, from both company specific factors (e.g. new products) and their assessment of end-markets. As such, we raise FY20-21E EPS by 6-8% (broadly in line with FactSet consensus), and raise ROE-g/COE-g Target Price, now based on 2.0x FY20E P/B (prev: 1.8x). See Venture Corp Target Price.
  • Referencing history, sustained improvement in macro conditions may present upside risk to consensus EPS estimates.
  • Venture Corp is trading at an undemanding 12.7x FY20E P/E and 4% yield. See Venture Corp Dividend History.

Three themes driving improving sentiment

  • Improving sentiment among Venture Corp’s customers (see Fig3 in attached PDF report for details) are generally along the themes of
    1. robust product pipeline;
    2. pent-up demand from delayed spending; and/ or
    3. 5G roll-out.
  • We see Venture Corp as a beneficiary of these trends as, over the next 12 months, it will be supporting customers’ key product introductions across multiple domains.

Two key drivers of positive consensus EPS revisions

  • 2H06-07 and 2H16-17 were periods that consensus forward EPS were consistently revised higher. This coincided with a favourable macro environment for capex spending, as well as successful product launches by customers. This may repeat in 2020-21 if the improvement in macro conditions is sustained.
  • Although customers are currently split between those observing strong vs. mixed end-markets, they are largely in agreement in signalling better 2020 prospects than 2019.
  • Outlook for customers appears to be stabilizing, with consensus revisions for customer 2020 revenue negligible since 4Q19. This contrasts to 9M19 when there were frequent downward revisions as the US-China trade war escalated.

Valuations are undemanding

  • If our thesis plays out, we believe Venture Corp may see y-o-y earnings growth in 2H20, assuming 1H:2H seasonality of 46:54. During 2006-07 and 2016-17, Venture Corp’s forward P/Es were typically between mean and +1SD above mean.
  • Key risk is if the cautious environment persists, resulting in
    1. weaker than expected volumes; or
    2. delays in new product introductions.
  • We see potential headwinds from trade, US elections and/or general manufacturing related issues. The ongoing earnings season may be pivotal as more customers introduce 2020 outlooks, and Venture Corp’s comments on prospects. See attached 14-page PDF report for complete analysis.
  • Venture Corp reports 4Q19 earnings on 27 Feb, and we expect 4Q19 PATMI of SGD83m. See Venture Corp Announcements.

Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-01-29
SGX Stock Analyst Report BUY UPGRADE HOLD 18.23 UP 16.910