Venture Corporation - RHB Invest 2020-05-11: Hit By Supply Chain Disruptions; Downgrade To NEUTRAL


Venture Corporation - Hit By Supply Chain Disruptions; Downgrade To NEUTRAL

  • Downgrade to NEUTRAL from Buy, new SGD15.10 Target Price from SGD16.60, 4% downside with c.4% FY20F yield.
  • Venture Corp’s 1Q20 PATMI plunged by 34% y-o-y – as revenue fell from disruptions in global supply chains, and lockdowns in China, Spain, the US and Malaysia mainly impacted the latter half of 1Q20.
  • We cut FY20F PATMI by 8% to reflect the lower revenues and margins – which leads to a lower Target Price that is pegged to 15x FY20F P/E.

Involved in products to deal with COVID-19.

  • Venture Corp (SGX:V03)’s products are being used to help those infected by COVID-19. Products include ventilators, and high-throughput equipment for testing, monitoring and automating workflow processes. Processes include those used for sample preparation, library preparation, next-generation sequencing, and the related supply chains – which are in strong demand.

Brighter outlook.

  • Venture Corp is looking beyond the lifting of the lockdowns in countries where its supply chain is located. It is also looking past the easing of measures affecting its operating entities in China, Malaysia, Singapore, Spain, and the US.
  • By end-April, most if not all of its operating entities received exemptions to operate without headcount or working hour constraints. As such, the supply side of its businesses has resumed operations, while continuing to comply with all safety and precautionary measures for on-site workers.
  • We expect the Venture Corp’s April numbers to remain weak, but this should improve in the quarters ahead.

Stronger 2H20F.

  • Venture Corp's management also expects a stronger 2H20, underpinned by traction with partners both existing and new. This will be further bolstered by some new production introductions by existing partners across multiple selected technology domains such as life sciences, healthcare & wellness, instrumentation & networking, and communications.
  • It also expects to gain momentum with several new partners in life sciences & genomics, as well as healthcare & wellness – where contributions should grow post 2020.

NEUTRAL now, due to net cash balance sheet and attractive dividends.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2020-05-11
SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 15.10 DOWN 16.600