Venture Corporation - UOB Kay Hian 2021-03-01: 4Q20 Results In Line; Positioned For Growth For Current & Adjacent Domains

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

Venture Corporation - 4Q20 Results In Line; Positioned For Growth For Current & Adjacent Domains

  • Venture Corp's 4Q20 net profit fell 10% y-o-y but was up 8% q-o-q, reflecting the recovery from disruptions caused by COVID 19. Full-year earnings of S$297m (18% y-o-y) was within expectations, forming 99% of our estimates.
  • Venture Corp is working on a variety of products and opportunities to drive earnings growth. We lower our 2021-22 earnings forecasts by 4- 7% to account for chip shortages and temporary disruptions in Malaysia due to COVID-19.
  • Maintain BUY on Venture Corp with a 1% lower target price of S$23.47 (20x 2021F P/E).



VENTURE CORP'S FY20 RESULTS


Results in line with expectations.

  • Venture Corp (SGX:V03)’s 2020 net profit came in at S$297m (-18% y-o-y). This formed 99% of our full-year estimates, in line with expectations.

Sequential improvement in earnings continued into 4Q20.

  • Net profit for 4Q20 which came in at S$87m (+8% q-o-q, -10% y-o-y) showed another quarter of sequential improvement.
  • On a h-o-h basis, 2H20 net profit registered a 21% recovery against 1H20.
    • Revenue from portfolio B (Instrumentation, Test & Measurement Technology, Networking & Communications, Security & Safety, Building Automation, Industrial IOT, Fintech & Advanced Payment Systems, Computing & Productivity Systems, Advanced Industrial Technology, Printing & Imaging, Related Components Technology and Others) which registered a decline of 8.3% y-o-y, proved to be more resilient compared with
    • Portfolio A (Life Science, Genomics, Molecular Diagnostics and Related Materials Technology, Medical Devices and Equipment, Healthcare & Wellness Technology, Lifestyle Consumer Tech, Health Improvement Products and Others) which fell 26.8% y-o-y in 2020.
  • Net margin remained stable at 9.9% in 2020, largely unchanged from 2019.

Venture Corp continues to work on a variety of products and new opportunities.

  • Venture Corp expects demand for its genomics-related products and solutions and advanced equipment for analysis/diagnostic Use in biological systems to drive growth in the life science technologies domain with the ongoing COVID-19 pandemic presenting opportunities in the development of testing and diagnostic products and solutions.
  • Furthermore, Venture Corp is looking to widen its participation in the robotics, automation and artificial intelligence; and advanced semiconductor-related equipment domains. Venture Corp expects the wide-ranging advances and growing applications of photonics and networking and communications technologies to drive demand for its expertise in these domains.
  • Leveraging on the group’s extensive knowhow across diverse domains, Venture Corp is also optimistic about eate and capture value in new adjacent domains, such as the battery electric vehicle (BEV) industry.


STOCK IMPACT


Strong balance sheet and good dividends provide limit to share price downside.

  • As of end-20, Venture Corp recorded net cash of S$929m (forming about 17% 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 dividend or better than that in the preceding year.
  • For 2020, Venture Corp has raised its dividend to S$0.75 (S$0.50 final and S$0.25 interim), higher than 2019’s dividend of S$0.70 (S$0.50 final and S$0.20 interim).

EARNINGS REVISION/RISK

  • We lower our Venture Corp's 2021 and 2022 net profit forecasts to S$340m (-4.2%) and S$376m (-6.8%) respectively due to chip shortages and temporary disruptions in Malaysia because of COVID-19. We also introduce our 2023 earnings estimate of S$405m.


VALUATION/RECOMMENDATION






John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-01
SGX Stock Analyst Report BUY MAINTAIN BUY 23.47 DOWN 23.760



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