Venture Corporation - CGS-CIMB Research 2020-04-21: COVID-19 Eats Into FY20 Earnings

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - COVID-19 Eats Into FY20 Earnings

We expect global lockdowns to crimp Venture Corp (SGX:V03)'s FY20F earnings and recessionary conditions to limit the FY21F profit outlook.
Its balance sheet remains strong while long-term growth will be driven by leading medical science products from US customers.
Reiterate ADD. Earnings cuts reflect current economic conditions.

In its latest World Economic Outlook release (14 Apr 2020), the International Monetary Fund (IMF) projects the global economy to contract by 3% in 2020 versus its 3.3% expansion forecast in Jan 2020. Gita Gopinath, its chief economist, said, “It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.” Its 2021 economic growth forecast was revised to 5.8% but we note that this is due to a lower base effect.
IMF expects US GDP growth to contract 5.9% in 2020.

On 14 Apr, Agilent (A US) withdrew its 2Q and FY20 guidance (provided on 18 Feb), citing the expanded and evolving nature of the COVID-19 pandemic. The company said its topline was up 2% through March but it experienced a "significant disruption" in its business in late-March.
Similarly, on 14 Apr, llumina (ILMN US) announced preliminary revenue growth for 1Q of 1.4% y-o-y and withdrew its FY20 guidance. The company expects its 2Q performance to be significantly affected by COVID-19-related disruption.

On 17 Mar, Venture Corp’s customer Thermo Fisher Scientific (TMO US) announced that it expected to produce up to 5m testing kits to detect nucleic acid from the SARS- CoV-2 virus that causes COVID-19 in April. Thermo Fisher Scientific’s test kits have received the CE mark from the European Union as well as required approvals from Canada, Singapore, India, Australia and New Zealand.

Given slowing economic growth and disruptions from lockdowns globally, we are forecasting revenue growth to fall 2% for FY20F (previously 4% growth). We note that this is incidentally the current FY20F average revenue (based on Bloomberg consensus estimates) decline of Venture Corp’s key customers.
See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
Our Target Price is still based on 12.5x FY21F EPS (0.5 s.d. below its 13-year forward average P/E of 15.4x).
Potential re-rating catalysts include new product launches by customers.
Downside risks include slower orders from customers and the impact of an escalation of the COVID-19 outbreak.
See attached PDF report for the list of Venture Corp’s factories & locations.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-21

SGX Stock Analyst Report ADD MAINTAIN ADD 16.78 DOWN 17.660