Venture Corporation - Maybank Kim Eng 2020-11-21: Earnings Inflection; Maintain BUY

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Earnings Inflection; Maintain BUY

We believe recovering end-markets and customers’ buoyant mood towards new products and pipeline create favourable conditions for an earnings upgrade cycle in FY21E as Venture Corp (SGX:V03) launches new products across several domains.
Potential upside drivers include stronger than expected momentum and positive margin surprise from deepening engagement with customers, in our view.
Maintain BUY on Venture Corp with target price of S$23.27 (18.5x FY21E P/E).

We believe Venture Corp is at the cusp of an earnings upgrade cycle as it expects a breadth of new products to be released from its R&D labs into manufacturing across several fast growing domains throughout 2021. End-markets are also recovering, and customers are broadly optimistic about new products and pipeline, which we believe signals positive end-market receptivity.
Current bright spots include the return of elective surgeries, 5G deployment, increased focus on R&D to protect against future health threats, and government spending.

We project Venture Corp's earnings to grow 23% in FY21E, propelled by recovering end-markets and the launch of new products. We see
1. our own underestimation of momentum and
2. room for margin upside as potential upside drivers.
In particular, we view that margins could positively surprise because some of the products launched are in the medical technology and life science domains, where Venture Corp has a good track record of delivering value add and has continually deepened relationships with customers.

Our target price for Venture Corp is based on 18.5x FY21E P/E, or 1.5 SD above 4-year mean. This was where Venture Corp traded 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/ 2020-11-21

SGX Stock Analyst Report BUY MAINTAIN BUY 23.270 SAME 23.270