Venture Corporation - Maybank Kim Eng 2020-11-08: When Stars Align

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - When Stars Align

Venture Corp (SGX:V03)'s 3Q20 PATMI of S$80.2m (-5.9% y-o-y, +14% q-o-q) was within our expectation but marginally below street’s.
Several end-markets are recovering well, and Venture Corp and customers’ are optimistic towards new products and pipeline. Such signs typically lead to an earnings upgrade cycle. As such we upgrade Venture Corp to BUY, now on 18.5x FY21E P/E, from 2x FY21E P/B previously.

Venture Corp's 3Q20 revenue rose 18.2% q-o-q to S$818.4m (-5.8% y-o-y), underpinned by strong demand from customers in the life science & genomics, medical devices & equipment, healthcare & wellness, networking & communications and semiconductor equipment domains.
Demand for essential products, such as ventilators and qPCR/dPCR equipment remains strong.
Net margin was resilient at 9.8% (flat y-o-y, -0.3ppt q-o-q).

During the 3Q20 reporting season, a common theme was customers’ broad-based optimism towards new products and pipeline. We are excited by this as it signals positive end-market receptivity. This corroborates with Venture Corp’s expectation for new products to be released from its R&D labs into manufacturing throughout 2021, including in fast growing domains mentioned above. See Fig2 in PDF report attached below for more details on Venture Corp’s customers’ outlook from latest available earnings/ conferences/ media.
Bright spots in end-markets include the return of elective surgeries, 5G deployment, increased focus on R&D to protect against future health threats, and government spending.

We now value Venture Corp using forward P/E from ROE-g/COE-g derived P/B. This is primarily to capture unquantifiable ROE upside, which is typical during the early parts of Venture Corp’s earnings upgrade cycles.
Our Target Price is based on 18.5x FY21E P/E, or +1.5 SD above 4-year mean, where Venture Corp spent much of its time trading at during the 2H17-1H18 earnings upgrade cycle.
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 to our view include
1. slower than expected recovery in end markets;
2. large customers’ M&As disrupting Venture Corp’s sales to these customers;
3. unexpectedly strong recovery in industries worse affected by COVID-19 than Venture Corp, thereby causing Venture Corp’s valuations to mean revert.

Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-11-08

SGX Stock Analyst Report BUY UPGRADE HOLD 23.27 UP 18.460