VENTURE CORPORATION LIMITED (SGX:V03)
Venture Corporation - NDR Key Takeaways; Stay NEUTRAL
- We hosted a non-deal roadshow for Venture Corp (SGX:V03) recently, and came away with the following highlights. It will likely see a steady recovery in 2H20, and is fulfilling the backlog of orders now.
- Earnings visibility is clear for 2H20F, and Venture Corp’s research & development segment aims to release new products for manufacturing companies from early 2021.
- NEUTRAL, SGD20.20 Target Price (17x FY21F P/E), nil upside with c.4% FY20F yield.
- Venture Corp is trading above its historical valuation, which justifies our call.
Production unlikely to return to high levels.
- Production cannot revert to pre-COVID-19 levels, due to social distancing measures. Venture Corp’s main aim now is to meet demand, balance orders between customers, and deliver products and services to them efficiently. Its top 10 customers now account for 45-55% of revenue, vs 50-60% in previous years. Customers are also becoming increasingly diversified.
Trying hard to maintain margins despite lower revenues.
- Venture Corp continues to work with its customers, implementing further cost controls and improving production efficiency. ASP pressure will align to end-market demand, in the meantime. Non-essential market segments may see some pressure, given the slower rate of recovery.
Growth in several segments.
- Customers that have increased orders are mainly from the life sciences, medical devices & equipment, networking & communications and semiconductor-related equipment domains. Venture Corp has also gained meaningful traction with its new customers, including its existing semiconductor partner in 2Q20.
Our target price is now pegged to a higher 17x FY21F P/E
- Our Target Price is now pegged to a higher 17x FY21F P/E (from 16x) to reflect its resilient margins and the stability it has over peers. However, valuations remain rich, as Venture Corp is trading above its 10-year historical P/E.
- On dividends, Venture Corp prefers to give long-term stable and sustainable payments. It declared a higher interim DPS of SGD0.25, vs SGD0.20 in 1H19. See Venture Corp Dividend History.
- Assuming the final dividend remains unchanged, Venture Corp's FY20F DPS will likely be raised to SGD0.75 from SGD0.70 – which indicates a c.4% FY20F yield. We believe this ratio is highly sustainable, and shareholders would likely continue to enjoy higher dividends if the company’s performance continues to improve. As a result, we remain NEUTRAL on Venture Corp.
- 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 downside risks are decelerating economic growth and the worsening of the US-China trade war. The opposite scenarios would present upside risks to our call.
Jarick Seet
RHB Securities Research
|
Lee Cai Ling
RHB Invest
|
https://www.rhbinvest.com.sg/
2020-08-26
SGX Stock
Analyst Report
20.20
UP
19.000
