Venture Corporation - DBS Research 2020-02-28: Back On A Growth Path


Venture Corporation - Back On A Growth Path

  • Venture Corp’s above-average net margin is a key differentiating factor from its peers. Net margin for 4Q19 improved to 10.3%, from 9.8%/10.1%/9.8% in 1Q/2Q/3Q of FY19. For the full year, Venture Corp reported a net margin of 10% (FY18: 10.6%).
  • 1Q20 could be weak due to COVID-19 outbreak but the group expects to fulfil customers’ orders in 2Q20 as well as the backlog from 1Q20.
  • A stronger 2H 2020 is on the cards, with new product introductions and new partners coming onstream.

FY19 results slightly above expectations.

  • Venture Corp (SGX:V03) reported FY19 net profit of S$363.1m(-2% y-o-y), on 4% increase in revenue to S$3633.4m, slightly above our expectations. See Venture Corp Announcements.
  • For 4Q19, both revenue and net profit were better than 3Q19, up 7% and 13% respectively, but still weaker on a y-o-y basis, as 4Q18 was the strongest quarter in the last two years.

Margins back to above 10% level.

  • Net margin for 4Q19 improved to 10.3%, from 9.8%/10.1%/9.8% in 1Q/2Q/3Q of FY19. For the full year, Venture Corp reported net margin of 10% (FY18: 10.6%).
  • Overall, Venture Corp’s ability to support its customers and partners, especially during periods of uncertainties, coupled with its continued initiatives to drive productivity gains and operational efficiency has put the group in a good stead.

Dividend maintained.

  • A final dividend per share (DPS) of 50 Scts was proposed. Including the 20 Scts interim dividend, total DPS for FY19 amounted to 70 Scts, no change from FY18. See Venture Corp Dividend History.

Strong cash position.

  • Net cash position as at end 4Q19 is even stronger now at S$713.4m (vs S$711.0m in 4Q18), driven by strong operating cash flows. This works out to S$2.46 per share or 15% of its current market capitalisation.
  • Venture Corp’s strong net cash position should support expectations that the 70-Sct DPS can be sustained going forward, which represents 4.2% yield based on its current share price.

COVID-19 impact.

  • Venture Corp’s two manufacturing plants in China, which account for less than 10% of total output, were not spared from the COVID-19 outbreak which has disrupted the global supply chain. Venture Corp has implemented corrective action plans to ensure sufficient supply, thus only a small percentage of its production is affected, mainly due to shortage of manpower.

Expect a stronger 2H 2020; new product introductions and new partners.

  • Starting from 2Q20, Venture Corp expects to be able to fulfil most, if not all, of its customers’ orders, including backlog from 1Q20.
  • Furthermore, Venture Corp will be supporting new product introductions from its existing partners across multiple selected technology domains, such as Life Science, Healthcare & Wellness, Instrumentation and Networking & Communications. It also expects to gain momentum with several new partners in the Life Science & Genomics and Healthcare & Wellness domains with growing contributions beyond 2020.

Beneficiary of diversified geographical footprint.

  • As the group’s manufacturing footprint is mostly located in Southeast Asia, Venture Corp is well positioned to capture new business opportunities as businesses continue to diversify their global supply chain network. Having a diversified geographical footprint is even more important now, especially with the on-going trade war and now, the COVID-10 outbreak.

Raised FY20F/FY21F earnings by 6%/7%; upgrade to BUY.

Lee Keng LING DBS Group Research | 2020-02-28
SGX Stock Analyst Report BUY UPGRADE HOLD 18.50 UP 17.200