VENTURE CORPORATION LIMITED (SGX:V03)
Venture Corporation - Constructive Demand Side View Thus Far
Upgrade to HOLD on limited downside; still wary of risks
- Venture Corp (SGX:V03)’s 1Q20 net profit fell 33.6% to SGD60.3m, accounting for 20% of our FY20E. While this was below typical 1Q seasonality due to Covid-19 disruptions, outlook on demand appears relatively stable thus far.
- We raise FY20-22E EPS by 4-6% to reflect resilient than expected margins. Hence, our ROE-g/COE-g Target Price rises to SGD14.66, now on 1.6x P/B (prev: 1.5x).
- We upgrade Venture Corp to HOLD given limited downside, but remain wary of softer than expected 2H20 demand recovery as key risk.
Venture Corp's 1Q20 impeded by supply side disruptions
- Venture Corp's 1Q20 revenue fell 27.5% y-o-y to SGD673m due to factory lockdowns and supply chain disruptions across China, Malaysia and Singapore from government mandated movement restrictions. By end-Apr, the supply side of Venture Corp’s business has normalised without headcount or working hour constraints.
- Venture Corp emphasises that its business are deemed “essential” products as well as services. Net margin was commendable at 9% (- 0.8ppt y-o-y).
Looking ahead at demand trends
- Venture Corp is working with customers to scale up the demand side. Notably Venture Corp sees strengths in life science, medical and wellness, semiconductor-related equipment, networking and communications, diagnostic and research equipment and test & measurement. These should account for 60-80% of revenue, by our estimates.
- Products used to help Covid-19 infected individuals, such as ventilators and high throughput qPCR and dPCR equipment are in strong demand.
- On the flipside, customers from POS and industrial end-markets appear cautious to negative on outlook.
Our concerns are unchanged
- We still see softer than expected capex appetite in 2H20 as a key earnings risk. Despite broadly constructive demand-related comments, most customers have withdrawn guidance, underscoring their view that demand recovery hinges on Covid-19 being well contained, and activity returning as close as possible to pre-Covid-19 levels.
- See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
- On balance, we still favour the long-term prospects of most of Venture Corp’s end-markets, but would prefer accumulating at better valuations to account for demand risks.
Gene Lih Lai CFA
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-05-10
SGX Stock
Analyst Report
14.66
UP
13.900
