Venture Corp - Maybank Kim Eng 2020-03-29: Recovery Delayed; Downgrade To HOLD

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

Venture Corp - Recovery Delayed; Downgrade To HOLD


Risk-reward balanced; await better valuations

  • We cut FY20-21E EPS by 13-20% to factor in
    1. Venture Corp (SGX:V03)’s partially shut factories in Malaysia and
    2. increasingly cautious customer and supply chain outlook.
  • We expect consensus to cut earnings expectations as Venture Corp has historically underperformed expectations during times of weakening economic fundamentals.
  • Our ROE-g/COE-g Target Price falls to SGD13.90, based on 1.5x FY20E P/B (prev: 2x) as we raise COE assumption to 9% (prev: 8%) to account for the stock’s increased volatility. Downgrade to HOLD from BUY.
  • On FY20E basis, Venture Corp is trading on 5% yield and 1.6x P/B, which are near long-term mean. During the GFC, Venture Corp troughed at 0.6x forward P/B and 12.4% yield.



Demand and supply shocks will delay recovery

  • Venture Corp’s facilities in Malaysia are near totally shut from 18-Mar to 14-Apr due to a government-directed movement control order (MCO) to curb the spread of Covid-19. Production of medical goods likely would have continued, as these are exempted from the MCO.
  • Malaysia accounts for at least 65% of Venture Corp’s production capacity. A few customers that were previously upbeat, such as Honeywell, Thermo Fisher and Broadcom have turned cautious. We fear that an increasingly uncertain environment increases the risk that customers may defer new product introductions (NPIs) till economic conditions improve.


Healthy balance sheet, cash flow and customers

  • We still like Venture Corp for its
    1. net cash to equity position of 29%,
    2. free cash flow that fully funds FY20E DPS of SGD0.70, and
    3. diversified customer base (top 20 customers account for 70-80% of revenue).
  • Specifically, a snapshot of 16 well known customers suggest most are decent paymasters, and have healthy liquidity, leverage and interest coverage ratios.


Wait for better margin of safety



Read also






Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-03-29
SGX Stock Analyst Report HOLD DOWNGRADE BUY 13.90 DOWN 18.230



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......