Venture Corporation - Maybank Kim Eng 2020-02-28: Positioned To Benefit

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VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Positioned To Benefit

FY19 slightly ahead; maintain BUY

• Venture Corp (SGX:V03)'s 4Q19 net profit fell 10.6% y-o-y to SGD96.2m amid a challenging operating environment, but was still a beat. Venture Corp expects to largely fulfil 1Q20 backlog in 2Q20, and also expects a stronger 2H20, supported by new and existing customers.
• MKE D-Lab recently conducted a sentiment poll, which suggests that investors are broadly bullish on Venture Corp's share price performance in 2020.
• Our forecasts, BUY rating, and ROE-g/COE-g Target Price of SGD18.23 (2x FY20E P/B) are maintained.

Maintains c.10% net margin in FY19E

• Venture Corp's 4Q19 revenue rose 2.9% to SGD932.1m. Management attributed the relative stability despite a challenging environment to Venture Corp’s
  1. well diversified customer base, and
  2. participation in domains such as life-science, instrumentation, healthcare & wellness.
• Venture Corp achieved net margin of 10% in FY19 (FY18: 10.6%), reinforcing our confidence that the current level of elevated profitability (FY10-16 net margin range: 5-7%) is sustainable in light of Venture Corp’s continual pursuit for operational excellence, and value add it provides to customers.

NPIs in 2H20; beneficiary of S.E. Asian footprint

• Venture Corp anticipates a stronger 2H20 HoH as it supports new product introductions (NPI) across several domains. We believe this is consistent with our expectations for y-o-y earnings recovery in 2H20 (see Venturing into a 2H20 recovery).
• Further, Venture Corp expects to gain growth momentum beyond 2020 with several new partners in life science & genomics and healthcare & wellness.
• Regarding Covid-19, production capacity outside China is intact, and that within China is largely restored. As Venture Corp races to secure components, it anticipates to clear 1Q20 backlog in 2Q20, and is well positioned to see increased wallet share from customers whose production capacity are still affected.

D-Lab suggests investors are bullish on VMS

• D-Lab conducted an investor sentiment poll in the first half of Feb-20. Of 21 respondents, 52.4% are bullish on Venture Corp's share price performance in 2020. Among top 2 concerns that are likely to affect Venture Corp’s fundamentals in 2020 are
  1. supply chain disruptions from Covid-19 (86%) and
  2. trade-related headwinds (52%).
• Final and full year DPS of SGD0.50/SGD0.70 maintained, translating to 4.2% yield.
• See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.

Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-02-28

SGX Stock Analyst Report BUY MAINTAIN BUY 18.230 SAME 18.230