Venture Corporation - DBS Research 2020-05-11: Temporary Setback


Venture Corporation - Temporary Setback

  • Weak 1Q20 performance, below expectations.
  • Full resumption of production; working with customers to scale up demand-side.
  • Cut earnings for FY20F/FY21F by 12%/7% on weaker 1Q20, and lower margins.
  • Downgrade Venture Corp to HOLD on limited upside to Target Price of S$15.90.

Weak 1Q20, below expectations.

  • Venture Corp (SGX:V03)’s 1Q20 was affected by the lockdown measures due to COVID-19. Net profit was down 33.6% on the back of the 27.5% drop in revenue. Net margins fell to 9%, the weakest quarter in the last two years. In comparison, 1Q19 net margin was 9.8% and 10.3% in 4Q19.
  • The disruptions to the global supply chain in China, Malaysia and Singapore, and factory lockdowns in China, Spain, the US and Malaysia, mainly impacted the second half of 1Q 2020.
  • Overall, 1Q20 revenue and net profit accounted for 18% and 17% respectively of our full year forecasts, below expectations.

Stronger cash position.

  • Venture Corp's net cash position as at end-1Q20 improved 19.5% y-o-y to S$852.5m. This works out to S$2.94 per share or c.19% of its current market capitalisation. Venture Corp’s strong net cash position should support expectations that the 70-Sct DPS can be sustained going forward. This represents 4.4% yield based on its current share price.

Full resumption of production; working with customers to scale up demand-side.

  • Venture Corp’s businesses are deemed as suppliers of both “essential products” as well as “essential services”. By end April, most if not all its operating entities received exemptions to operate without headcount or working hours constraints.
  • Venture Corp is working closely with its customers/partners to scale up the demand side. Venture Corp continues to see strengths in demand for services and products in technology domains such as Life Science, Healthcare & Wellness, Semiconductor-related Equipment, Communications and Networking modules and products, Diagnostic and Research equipment, and Instrumentation for Test & Measurement.

Strong demand for products used to help COVID-19 infected individuals and advantage.

  • There is strong demand for Venture Corp’s products that are being used to help COVID-19- infected individuals, such as ventilators and DNA molecule testing and monitoring equipment, including those used for next-gen sequencing and the related supply chains.

Beneficiary of realignment of the global supply chain.

  • The COVID-19 pandemic could push companies to diversify their supply chain network, especially out of China, which accounts for the bulk of the global manufacturing output. Venture Corp, with its strong footing in both Malaysia and Singapore, should benefit from this diversification trend in the medium term.

Cut earnings for FY20F/FY21F by 12%/7%; downgrade to HOLD.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2020-05-11
SGX Stock Analyst Report HOLD DOWNGRADE BUY 15.9 UP 15.800