Venture Corporation - DBS Research 2020-08-11: Strong Demand, Supply Chain Recovery To Lift 2H20


Venture Corporation - Strong Demand, Supply Chain Recovery To Lift 2H20

  • Commendable 1H20 results with 2Q20 margins back to 10% level; higher DPS of 25cts declared.
  • Focus on fulfilling orders of essential goods and gradual resumption of non-essentials; NPIs pushed back to early 2021.
  • Expect stronger 2H20 on strong demand and steady recovery of supply chain.

2Q20 margins back to 10% level; higher DPS declared

Commendable 1H20 results; higher DPS of 25cts declared.

  • Venture Corp (SGX:V03)'s 1H20 revenue fell 25.5% y-o-y to S$1365.7m, affected by disruptions to the global supply chain and factory lockdowns in Malaysia, Spain, US and China caused by the COVID-19 pandemic. Orders for some customers operating in non-essential end market segments were pushed back.
  • 1H20 net profit eased 28.2% to S$130.5m, translating to net margin of 9.6%. We deem it in line with our forecasts and expect a stronger 2H20.
  • Surprisingly, higher DPS of 25Scts was declared (vs 20Scts last year).

2Q20 net margins returned to c.10% level.

  • Despite the difficult operating environment, the group delivered a strong sequential quarterly recovery. This was underpinned by its resilience due to a diversified customer portfolio and nimble adaptability to business changes. On a q-o-q basis, Venture Corp recorded net profit of S$70.2m (-22.7% y-o-y, +16.4% q-o-q), on revenue of S$692.7m (-23.3% y-o-y, +2.9% q-o-q). 2Q20 net margins improved to 10.1% from 9.0% in 1Q20, which is similar to 2Q19.

Stronger net cash level.

  • Venture Corp continued to maintain a healthy net cash position of S$833.0m, up 16.8% from S$713.4m at end-December 2019. Its net cash now accounts for c.15% of its market capitalisation. With improved cash level, Venture Corp is in a stronger position to further enhance its technological capabilities and propel the group to the next level of excellence.

Outlook & Strategy

Focus on fulfilling essential orders in 2H20.

  • With the supply chain almost back to normal, Venture Corp will continue to focus on fulfilling orders for essential goods in 2H20. Demand for essential goods such as ventilators, PCR (Polymerase Chain Reaction) equipment used in laboratories, networking and diagnostic equipment saw demand surge by multiple folds.
  • Though demand is strong, due to the shortage of materials and parts some orders were not fulfilled and some customers were on allocation basis. This strong demand trend, especially for the medical equipment segment, is expected to last beyond 2020 due to the COVID-19 pandemic that is expected to be prolonged.
  • In the semiconductor space, Venture Corp has gained more traction with a few new customers onboard. Venture Corp builds module that goes into the manufacturing of semiconductor equipment used for the manufacturing and testing of chips. These chips are used in areas like networking, personal computer (PC) processor and gaming machines that are in high demand, especially during this pandemic period.

Gradual resumption of orders for non-essentials.

  • The supply chain was badly affected from February to April but recovered strongly in May and June, and this trend is expected to continue in 2H20. With the steady recovery of the supply chain, Venture Corp is also working to fulfil its customers’ orders from the other technology domains serving non-essential end markets, for example the consumer goods segment.

NPI pushed back to early 2021.

  • A number of new product initiatives (NPI) will be pushed back to early next year as the group continues to focus on fulfilling outstanding orders, both for the essential and non-essential goods and service segment. A key differentiating factor for Venture Corp is its strong research and development (R&D) capabilities. One of Venture Corp’s strategies is to partner with industry leaders for product developments. Venture Corp’s R&D labs plan to release a number of newly developed products for manufacturing commencing in early 2021.

Earnings & Recommendation

Maintain BUY and Target Price of S$20.70.

Lee Keng LING DBS Group Research | 2020-08-11
SGX Stock Analyst Report BUY MAINTAIN BUY 20.700 SAME 20.700