Venture Corporation - CGS-CIMB Research 2020-05-08: Exiting Lockdown Impact


Venture Corporation - Exiting Lockdown Impact

  • Venture Corp provided its 1Q20 update, with revenue/net profit down by 27.5%/33.6% y-o-y due to the impact of the Covid-19 outbreak.
  • The company guided that its normal operations had resumed by end-Apr and demand for most of its business segments remained strong.
  • Reiterate ADD on Venture Corp on its long-term prospects and strong balance sheet, which should help it weather through the Covid-19 impact.

1Q20 deemed in line with our expectations

  • Venture Corp (SGX:V03) provided its 1Q20 update on 8 May (the company is ceasing its quarterly reporting from now on). Revenue fell by 27.5% y-o-y in 1Q20, due to supply chain disruptions and factory lockdowns arising from the Covid-19 outbreak. 1Q20 net profit benefitted from a lower effective tax rate of 13.7% (1Q19:14.5%), while net profit margin fell 0.8% pt to 9.0% (1Q19: 9.8%). The 1Q20 net profit of S$60.3m (-33.6% y-o-y) accounted for 18% of our full-year forecasts (vs. historical average of 20%).
  • Given the unexpected Covid-19 outbreak, we deem Venture Corp’s 1Q20 results to be in line with our expectations. 1Q is also a seasonally weaker quarter.

Balance sheet remains strong

  • Venture Corp's net cash position as at 31 Mar 2020 was S$852.5m, an improvement from the S$713.4m as at 31 Dec 2019. Bank loans were a minimal S$1.1m. BV/share rose to S$9.11 as at end-1Q20 (from S$8.65 as at end-4Q19).

1 month impact on 2Q20, but positive in the long term

  • In terms of outlook, Venture Corp is looking forward to the lifting of the lockdown of its global supply chain, as well as all of its operating entities in China, Malaysia, Singapore, Spain and US. By end-Apr, almost all its operating entities received exemptions to operate without headcount or working hours constraints.
  • Venture Corp continues to see strength in demand for products in life science, medical and wellness, semiconductor-related equipment, communications and networking, diagnostic and research equipment, and instrumentation for test and measurement. At the same time, Venture Corp believes that some realignment of the global supply chain will be inevitable, and its entities in Singapore and Malaysia will be potential beneficiaries.

Reiterate ADD

William TNG CFA CGS-CIMB Research | 2020-05-08
SGX Stock Analyst Report ADD MAINTAIN ADD 16.780 SAME 16.780