VENTURE CORPORATION LIMITED (SGX:V03)
Venture Corporation - Healthy Outlook For 2020
- Venture Corp (SGX:V03)'s 4Q19 PATMI beat our estimates by 11% due to higher than expected revenue.
- Venture Corp's direct exposure in China is less than 10% but the shutdown has disrupted the supply chain and will negatively impact product deliveries in 1Q20.
- The outlook is positive with a rebound in 2H20. Growth in 2020 driven by two areas:
- further outsourcing of the supply chain into SE Asia from China. This trend turned more acute after the recent outbreak;
- new products and customers in the Life Science Genomics and Healthcare Wellness domains.
- Maintain ACCUMULATE. Our target price is raised to S$18.10 (prev S$17.18) as we roll-over into FY20e 14x PE. We kept our FY20e earnings largely unchanged.
- We expect a softer 1Q20 to be recovered in 2H20. Venture Corp is gaining profit share in the global EMS sector, paying an attractive 4.3% dividend yield and enjoying a c.15% ROE business (despite net cash of S$714mn).
The Positive
Revenue was resilient.
- Revenue grew 2.9% y-o-y against our estimated decline of 7%. We believe outsourcing demand shifting away from China supported the growth. From FY17 onwards, Venture Corp has managed to sustain its annual revenue run-rate to ~S$3.5bn level.
The Negatives
Surge in trade receivables.
- Trade debtor surged 23% q-o-q (or S$172mn) to S$898mn in 4Q19, despite revenue only rising 7% q-o-q (or S$63mn). We are not alarmed. These are tactical extension of credit to Tier 1 customers. There are typical positive offsets for Venture Corp.
Higher operating expense offset the revenue growth.
- Total operating expenses jumped almost 8% y-o-y, outpacing revenue growth. The increase was in other expenses (+3.4% y-o-y) and employee expenses (+11.2% y-o-y).
Outlook
- Outlook for FY20e is healthy. The outbreak has triggered many customers to shift more orders from China to SE Asia. However, there will be a time lag in qualifying Venture Corp plants, sourcing new materials in SE Asia and raising capacity. Likely that customers are fast-tracking the qualification of Venture Corp factories.
- Another growth area for FY20e will be new products and customers in the Life Science Genomics and Healthcare Wellness domains.
Maintain ACCUMULATE with higher Target Price of S$18.10 (prev S$17.18)
- Our valuation is based on a 14X PE multiple of FY20e profits. Forecast for FY20e is largely unchanged.
- We like Venture Corp for its robust balance sheet, and deep value creation abilities owing to its strong R&D team.
- See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
Paul Chew
Phillip Securities Research
|
https://www.stocksbnb.com/
2020-03-02
SGX Stock
Analyst Report
18.10
UP
17.180
