Venture Corporation - UOB Kay Hian 2021-02-25: FY20 Results Preview & Potential Risks For 2021

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - FY20 Results Preview & Potential Risks For 2021

We expect Venture Corp's 2020 earnings to be largely in line with our estimate of S$300m as sequential recovery continues into 4Q20 from further reopening of economies and good demand for customers’ essential products. However, we see three potential key risks for 2021:
1. delay of new product launches due to weaker market sentiment,
2. production disruption due to COVID-19 outbreak in Malaysia, and
3. reduced demand for essential products linked to COVID-19.
Maintain BUY on Venture Corp and target price of S$23.76.

To recap, Venture Corp (SGX:V03)’s 9M20 earnings of S$211m forms around 70% of our full-year forecast. Our 4Q20 earnings forecast of S$89m (+11% q-o-q, -8% y-o-y) is expected to reflect sequential growth but decline on a y-o-y basis.
The sequential recovery is expected to be driven by factors which impacted 3Q20 like the further reopening of economies and good demand for customers’ essential products.
In addition, several key Venture Corp's customers reported a healthy set of 4Q20 results:
- Broadcomm’s 4Q20 revenue grew 12% y-o-y;
- Thermo Fisher’s 4Q20 revenue grew 54% y-o-y; and
- Illumina’s 4Q20 revenue grew 20% q-o-q, flat y-o-y.

Venture Corp’s clients may delay new product launches into the later part of the year if market sentiment weakens. For instance, 4Q20 and 1Q21 saw a resurgence in the number of COVID-19 cases around the world, especially in US and EU, key markets of Venture Corp’s clients.

Although the recently announced two-week movement control order (MCO) for eight states in Malaysia provides flexibility for essential services, such as manufacturing, to continue operations, we believe the resurgence in COVID-19 cases could raise the risk of disruption to production.
The Malaysian government ordered all foreign workers to undergo mandatory COVID-19 screening starting 1 Jan 21, including the manufacturing sector. Should Venture Corp's employees test positive, it could lead to a temporary disruption to operations or capacity cuts at its factories. Venture Corp’s presence in Malaysia, which includes Johor and Penang (both of which fall within the MCO states), form 81% of its total site area.

For 2020, several of Venture Corp’s clients have benefitted from essential products due to COVID-19, especially Thermo Fisher, whose full-year revenue grew 26% y-o-y and majority of the growth was driven by COVID-19-related testing equipment.
From its 2021 revenue forecast of 9%, Thermo Fisher expects COVID-19-related testing to contribute 2% growth, while the base business contributes the remaining 7%.

As of end-1H20, Venture Corp recorded net cash of S$831m (forming about 15% of its current market cap) and led the pack of US-listed peers which were mostly in net debt positions.
More importantly, Venture Corp has consistently paid the same amount of dividends or better than in the preceding year. We expect a dividend of S$0.75 per share this year which translates into an attractive dividend yield of 3.9%.

See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
We maintain our earnings forecast for Venture Corp. Maintain BUY with PE-based target price of S$23.76, pegged to +1 standard deviation above its forward mean P/E, of 19.4x on 2021F earnings.
At the current Venture Corp share price, the stock offers a dividend yield of 3.9%.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-25

SGX Stock Analyst Report BUY MAINTAIN BUY 23.760 SAME 23.760