Venture Corporation - OCBC Investment 2020-08-11: Rewarded For Keeping The Faith


Venture Corporation - Rewarded For Keeping The Faith

  • COVID-19 weighing on 1H20, but 2H20 likely to witness recovery.
  • Strong balance sheet with unexpected dividend hike.
  • Newly developed products to be released into manufacturing from early-2021.

1H20 under expectations, but look past that

  • Venture Corp (SGX:V03)’s 1H20 revenue fell 25.5% y-o-y to S$1.4b, due to the initial disruptions to global supply chain and factory lockdowns in Malaysia, Spain, US and China arising from measures implemented as a result of COVID-19.
  • While Venture Corp was able to mitigate some of this impact, some orders from customers in non-essential end market segments were nonetheless pushed back to later quarters. PATMI of S$130.5m was down 28.2% y-o-y, which formed 34.8% of our full-year forecast.
  • Encouragingly, net margin rose from 9.0% in 1Q20 to 10.1% in 2Q20 on the back of good cost control, while balance sheet remained strong with Venture Corp in a net cash position of S$833.0m (from S$713.4m as at 31 Dec’19).

2Q20 a turning point

  • Bucking the trend of dividend cuts witnessed by many companies, Venture Corp has declared a higher interim DPU of 25 S-cents (20 S-cents in FY19), and is still guiding to pay dividends on par or more than the previous year, despite no formal dividend policy. See Venture Corp Dividend History.
  • Venture Corp notes that customers who continue to see sustained demand for their essential products and services largely include those from the Life Science, Medical Devices & Equipment, Networking & Communications and Semiconductor-related Equipment domains.
  • Encouragingly, Venture Corp notes that it is also working to fulfil orders from other technology domains that cater to non-essential end markets, given the gradual reopening of selected economies since late-Apr. Venture Corp also notes that it expects a continuation of the steady recovery it has seen in 2Q20 into 2H20. Its plans to release a number of newly developed products into manufacturing commencing early-2021 also provides upside risk to next year’s earnings.

Fair Value of S$22.50

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-08-11
SGX Stock Analyst Report BUY UPGRADE HOLD 22.50 UP 18.090