Venture Corporation - RHB Invest 2020-08-11: Better Outlook Ahead But Valuations Are Fair


Venture Corporation - Better Outlook Ahead But Valuations Are Fair

  • Stay NEUTRAL, new SGD19.00 Target Price from SGD15.10, 1% upside with 4% FY20F yield.
  • Venture Corp (SGX:V03)’s 2Q20 earnings grew 16.4% q-o-q to SGD70.2m, despite being impacted by its factories being shuttered due to lockdowns implemented in several countries.
  • Going forward, it expects to see sustained demand from several segments, and anticipates the recovery to continue. Production for new items is also scheduled to ramp up in early 2021.
  • We lift FY20-20F PATMI by 5% and 8%, while our new Target Price is pegged to 16x FY21F P/E.

Demand for essential goods remains strong.

  • April was a weak month for Venture, due to the lockdowns and social distancing measures that impacted production. However, since the later part of that month, the group has worked conscientiously to fulfil orders from other technology domains serving non-essential end-markets.
  • Demand for essential goods remains very strong – from customers in the life sciences, medical devices & equipment, networking & communications, and semiconductor-related equipment industries.

DPS likely to rise to SGD0.75, indicating a 4% yield.

  • Due to its strong balance sheet and positive cash flow generation, Venture Corp declared a higher interim DPS of 25 cents, compared with 20 cents in 1H19.
  • Assuming the final dividend remains unchanged, FY20F DPS will likely increase to SGD0.75 from SGD0.70, representing a 4% FY20F yield. We think this highly sustainable, and shareholders will likely continue to enjoy higher dividends if its performance continues to improve.

Brighter outlook but valuations remain rich.

  • Management also expects a stronger 2H20, supported by traction with new and existing partners. There will also be support on several new production introductions by existing partners across several technology domains such as life sciences, as well as medical devices & equipment, networking & communications, and semiconductor-related equipment.
  • Venture Corp is also expected to begin working for some new products for the manufacturing sector in early 2021.
  • Valuations remain rich, however, and the stock is trading above the 10-year historical P/E – even though we rolled over our Target Price to reflect a FY21F value. This, on top of its tepid PATMI and revenue growth, compels us to remain NEUTRAL on this counter.
  • See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
  • Key risks are decelerating economic growth, and a worsening of the US-China trade war.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | 2020-08-11
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 19.00 UP 15.100