Venture Corporation - Phillip Securities 2020-08-11: Stronger Recovery In 2H20

VENTURE CORPORATION LIMITED (SGX:V03) | SGinvestors.io VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Stronger Recovery In 2H20

  • Venture Corp (SGX:V03)'s results were within expectations. 1H20 revenue and PATMI fell 25% and 28% y-o-y to S$1.36bn and S$130.6mn respectively. The interim dividend was raised 25% to 25 cents.
  • Manufacturing activities were restricted in April either directly impacting the factory or indirectly via the supply chain due to the lockdown. Operations rebounded swiftly in May and June and expected to recover further into the 2H20.
  • We are downgrading Venture Corp to NEUTRAL with a higher target price of S$18.40 (previously S$16.60). We lowered our FY20e revenue estimates by 2% but PATMI was raised by 5%. Our gross margin forecast is increased by 1% point to 26%. We nudged up our valuation metrics to 16x PE (previously15x). Higher valuation is warranted as recovery is underway and earnings temporary depressed by the pandemic.
  • Venture Corp is paying an attractive 4.4% yield, well supported by an S$833mn net cash balance sheet. New life science projects and shift in the supply chain from China to SE Asia will be supportive of revenue growth.





The Positive


Increase in dividends

  • With the increase in net cash to S$833mn as at Jun20 (Jun19: S$760mn), the interim dividend for 1H20 increased to 0.25 cents (1H19: 20 cents). See Venture Corp Dividend History.

Gross margins surged.

  • 1H20 gross margins stood at 26.6%m almost 2% point increase y-o-y. This was a surprise despite the lower revenues and economies of scale. Reason for the higher margins was due to the difference in product mix.


Outlook

  • Venture Corp's 2H20 is expected to be stronger than 1H20 which essentially lost one month of revenue. We expect some spillover of uncompleted orders to occur into 2H20. Venture Corp mentioned a number of new products to be released in early 2021.


Downgrade to NEUTRAL






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2020-08-11
SGX Stock Analyst Report NEUTRAL DOWNGRADE ACCUMULATE 18.40 UP 16.600



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