Venture Corporation - CGS-CIMB Research 2020-11-06: Is A Re-Rating On The Cards?

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Is A Re-Rating On The Cards?

Some of Venture Corp (SGX:V03)’s customers reported results recently. We think new product launches by customers could possibly lift Venture Corp’s FY22F net profit.
Venture Corp provided a 3Q business update on 6 Nov 2020. 3Q20 net profit was in line with our and consensus’ forecasts.
With an estimated 15.4% average net profit growth over FY21-22F, we raise our Venture Corp's P/E peg to 18.5x on FY21F EPS, leading to a higher target price.

Overall, the I Quit Ordinary Smoking (IQOS) momentum remains healthy, with 16.4m users as at end-Sep 2020, an increase of 1.1m users vs. 2Q20, and 4.1m y-o-y. Philip Morris intends to bring more exciting innovation from IQOS in the coming quarters and is also optimistic that the US Food and Drug Administration's granting of Modified Risk Tobacco Product for a version of its IQOS will contribute over time to better understanding of the heated tobacco category and the benefits of switching to IQOS from traditional smoking.
IQOS was also launched in Costa Rica, Georgia, Jordan and the Philippines in 3Q20. Philip Morris also reported the commercialisation of IQOS VEEV, its new e-vapour product which was launched in New Zealand during the quarter. Philip Morris plans to roll out to further markets in 4Q20, while bigger launches are planned for 2021.

Venture Corp provided a 3Q business update on 6 Nov 2020. Both 3Q20 revenue and net profit were in line with our and consensus’ expectations.
Venture Corp guides that it expects a stronger 2H20F, compared to 1H20, if there are no further COVID-19-related lockdowns and disruptions. In FY21F, the company expects that new products/solutions engineered and developed in its research and development labs will be scheduled for release into the end markets by its partners and customers in several technology domains. Such domains include Life Science Genomics, Healthcare Wellness, and COVID-19-related detection, testing, diagnostic products and solutions.
Venture Corp also commented that demand for Medical Devices, Networking Communications and Semiconductor-related modules has been strong as well.

We raise our Venture Corp's FY22F EPS by 2% as we think some of the product launches by customers could lift FY22F EPS. Given our expectations of average EPS growth of 15.4% over FY22- 21F, we lift our P/E peg to 18.5x (0.5 s.d. above its 14-year average of 15x), leading to a higher target price. Our previous P/E target was 15x, its 14-year average.
See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
Worsening of the COVID-19 outbreak remains a downside risk.
A net cash balance sheet (S$830m as at end-Sep 2020) supports Venture Corp’s ambitions to sharpen its competitive advantage, either through talent acquisition or selective M&As, as well as our 3.5% dividend yield forecasts over FY20-22F.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-06

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