Venture Corporation - RHB Invest 2020-02-28: After a Superb 4Q19, a Brighter Outlook; BUY

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - After a Superb 4Q19, a Brighter Outlook; BUY

Maintain BUY, SGD19.30 Target Price implies 17% upside with c.4% FY20F yield.
As expected, Venture Corp (SGX:V03) delivered sturdy 4Q19 numbers, with a PATMI of SGD96.3m (+13% q-o-q).

It expects to record a strong 2H20, and anticipates most – if not all – orders to be fulfilled, having implemented corrective measures to stabilise supply. Note that the majority of its production capacity is still outside of China.

With the global supply chain disrupted due to the outbreak, especially in China, Venture Corp swiftly implemented a corrective action plan to stabilise its assured supply. As the majority of its manufacturing capacity remains outside of China, operations have not been impacted.
Management expects to fulfil most, if not all, orders. This is inclusive of any backlog in 1Q20, and will start from 2Q20 onwards.

Management also expects to chart a stronger 2H20 performance, supported by traction with new and existing partners. There will also be support for new production, from its partners across multiple selected technology domains such as life sciences, healthcare & wellness, instrumentation, and networking & communications.
It also expects to gain momentum with several new partners in life sciences and genomics, as well as healthcare & wellness – and anticipates contributions from these partnerships to grow post FY20.

While competitors with the majority of their footprint and supply chains in China are severely impacted, Venture Corp – having its supply chain and production capacity mostly outside of China – will likely be the biggest beneficiary of the outbreak.
Customers that used to rely on China for manufacturing due to lower costs are now seeking options to have a second source outside of China, especially in the light of the trade war and the outbreak. Some customers have also increased orders despite the relatively higher cost, and transferred some products to be manufactured by Venture Corp instead of the latter’s competitor.

Management declared a total DPS of SGD0.70 for FY19, implying a 56% payout of NPAT. Management also guided that it is looking to pay out sustainable dividends, and we expect FY20F dividends to be likely the same or higher than that of FY19, resulting in a FY20F yield of at least 4.2%.
See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
Key risks are decelerating economic growth and the US-China trade war worsening.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-02-28

SGX Stock Analyst Report BUY MAINTAIN BUY 19.300 SAME 19.300