Venture Corporation - Phillip Securities 2020-03-02: Healthy Outlook For 2020

VENTURE CORPORATION LIMITED (SGX:V03) | SGinvestors.io 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:
    1. further outsourcing of the supply chain into SE Asia from China. This trend turned more acute after the recent outbreak;
    2. 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)






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2020-03-02
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 18.10 UP 17.180



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