Venture Corporation - Phillip Securities 2021-03-01: New Growth Drivers

VENTURE CORPORATION LIMITED (SGX:V03) | SGinvestors.io VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - New Growth Drivers

  • Venture Corp (SGX:V03)'s 4Q20 net profit declined 10% y-o-y to S$86.6mn. FY20 profit was in line at 101% of our forecast Revenue was slightly below at 96%.
  • Venture Corp's net cash piled to a record S$928mn, supported by FCF of S$425mn in FY20.
  • Venture Corp is pivoting to new growth drivers: electric-vehicle (EV) batteries and wafer-fab equipment. EVs are expected to experience explosive multi-year growth, especially in the Chinese market. Venture Corp intends to expand its manufacturing cluster in China. Equipment for gene sequencing is another exciting area undergoing massive innovation.
  • Remain NEUTRAL. We nudge up FY21e PATMI by 3%.



The Positive


Margins stable.

  • Despite weaker revenue, Venture Corp managed to contain costs and expand PBT margins by 1.2% points to 11.9%. 2H20 gross profit margins rose to 26.1% from 25.2% in 2H19. This was aided by a higher mix of life-science products.
  • Venture Corp's operating expenses such as staff and other expenses fell in line with the weaker revenue.

Record operating cash flows.

  • Venture Corp's net cash jumped 30% to a record S$928mn in December 2020. Operating cash flows in FY20 were S$453mn.
  • Positive working-capital generation of S$114mn was largely due to a normalisation of trade debtors in early 2020.


The Negative


Revenue softer than expected.

  • Revenue only improved a modest 1% q-o-q to S$828mn. Average improvement in the prior two quarters was 12%. We believe the drag came from weaker point-of-sale terminals. A sluggish retail environment due to the pandemic reduced the need for such terminals.
  • On the other hand, demand for ventilators and diagnostic equipment rose.


Outlook

  • FY21 should be a year of recovery from a supply-chain-disrupted 2020. A stronger global economy should, moreover, provide impetus to Venture Corp’s earnings growth.
  • To exceed its record earnings of FY17/18, Venture Corp is pivoting to new product categories such as EV batteries, wafer-fab modules and gene-sequencing equipment. Some products are new introductions that will require time to scale up.
  • China is becoming a key market for potentially vast healthcare and EV demand. Venture Corp will raise its manufacturing and engineering presence in China.

Maintain NEUTRAL with a higher target price of S$19.20, from S$18.60






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-03-01
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 19.20 UP 18.600



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