Venture Corporation - UOB Kay Hian 2020-02-28: 4Q19 Above Expectations; Well Positioned To Capture New Opportunities

VENTURE CORPORATION LIMITED (SGX:V03) | SGinvestors.io VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - 4Q19 Above Expectations; Well Positioned To Capture New Opportunities

  • Venture Corp’s 4Q19 net profit (+13% q-o-q) beat our and consensus expectations by 10%, with 2019 accounting for 103% of both full-year forecasts.
  • Outlook is positive, with Venture Corp seeing opportunities to capture more businesses as most of its facilities, which are based in Southeast Asia, stand to benefit from businesses looking to diversify their supply chain network. It is also receiving more orders from customers whose suppliers are disrupted by the COVID-19 outbreak.
  • Maintain BUY and higher target price of S$19.80.



VMS 4Q19 RESULTS


4Q19 net profit of S$96.3m is above expectations.

  • Venture Corp (SGX:V03) reported 4Q19 net profit of S$96.3m (-11% y-o-y, +13% q-o-q), above our and consensus’ expectations, with 2019 net profit accounting for 103-104% of both full-year forecasts. The strong q-o-q growth of 13% was mainly due to the better clarity on the US-China trade deal in mid-4Q19, which has triggered customers to resume their procurement decisions.

Positive outlook from Venture’s strong foothold in Southeast Asia.

  • Venture Corp sees limited impact from the COVID-19 outbreak as it has limited manufacturing facilities in China, and has also swiftly implemented corrective measures to stabilise its supply sourcing.
  • More importantly, it is receiving more allocations from customers whose suppliers are impacted by the COVID-19 outbreak, and Venture Corp expects to retain majority of these orders in future. In addition, Venture Corp is well positioned to capture new business opportunities as businesses continue to diversify their supply chain network.

Anticipates a stronger 2H20 from introduction of new products.

  • Venture Corp will be supporting new product introductions from existing partners across several domains including Life Science, Healthcare & Wellness, Instrumentation and Networking & Telecommunications. Based on our channel checks, clients that have new product launches this year include Philip Morris (IQOS MESH in 3Q20) and Illumina (NextSeq 2000 in 1Q20 and NextSeq 1000 in 4Q20).

Strong balance sheet and attractive dividend yield provide limited downside.

  • As at end-19, Venture Corp recorded a net cash position at S$713.4m, forming 15% of its market cap. antly, Venture has consistently paid the same level of dividend or better than that in the preceding year.


STOCK IMPACT


Expecting earnings growth in 2020.

  • While the uncertain business environment persists, we see a more positive outlook for Venture Corp in 2020 on the back of the phase one trade deal between US and China which could translate into a better business environment for its clients and stabilisation in clients’ earnings in the latest report season.
  • Unlike 2019, we have not seen a major reduction in consensus estimates post the earnings release of its clients in Jan-Feb 20.
  • Furthermore, some of its clients are expecting low single-digit revenue growth for 2020:
    • Agilent guided for 6.5% growth for 2020,
    • Keysight expects 1Q20 growth of 4-6%,
    • Thermo Fisher expects 4-6% growth for 2020, and
    • Philip Morris guided for 5% growth for 2020.


EARNINGS REVISION/RISK

  • We raise our 2020 and 2021 earnings estimates by 0.6% and 1.5% respectively on the back of higher revenue. We also introduce our 2022 net profit forecast of S$387.6m.


VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • Better-than-expected net profit.
  • Higher-than-expected dividend.
  • Potential EPS-accretive acquisitions.





John Cheong UOB Kay Hian Research | Joohijit Kaur UOB Kay Hian | https://research.uobkayhian.com/ 2020-02-28
SGX Stock Analyst Report BUY MAINTAIN BUY 19.80 UP 19.620



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