Venture Corporation - DBS Research 2021-03-01: Leader Of The Pack; Maintain Buy


Venture Corporation - Leader Of The Pack; Maintain Buy

  • Venture Corp's FY20 results in line; expect strong recovery seen in 2H20 to extend into FY21F.
  • 2H20 net margins improved to 10.1% from 9.6% in 1H20.
  • New products and ongoing recovery to drive growth; opportunities in trending domains.
  • No change in forecasts; maintain BUY and target price of S$24.30.

FY20 results in line; strong recovery in 2H20.

  • Venture Corp (SGX:V03) reported FY20 net profit of S$297.3m, down 18.1% y-o-y, on the back of a 17.1% decline in revenue to S$3,012.9m, in line with our forecasts. 2H20 showed a significant improvement from 1H20, reflecting a steady recovery from the various disruptions caused by the global COVID-19 pandemic.
  • Revenue for 2H20 registered a 20.6% increase from 1H20 while net profit surged 27.8% vs 1H20. The improvement came from Life Science, Medical, and Networking & Communications, partly offset by weaker performance for divisions like Advanced Payment Systems.
  • A S$0.50 dividend was declared, bringing Venture Corp's total dividend for FY20 to S$0.75, vs S$0.70 in FY19.

2H20 net margins improved to 10.1% from 9.6% in 1H20.

  • The improvement in margins demonstrates Venture’s resilience and its differentiating capabilities to capture growth. One of Venture Corp's key strength is its ability to attract new partners/customers seeking its complete end-to-end solutions from R&D right through product commercialisation.

Strong balance sheet.

  • Venture Corp’s cash position of S$928.7m remained healthy, up 30% from S$713.4m at end-December 2019, even after a higher interim dividend payment of S$72.5m in September 2020. Its cash now accounts for ~17% of its market capitalisation.
  • Venture Corp has zero debt. With improved cash level, Venture Corp is in a stronger position to further enhance its technological capabilities to propel the group to the next level of excellence.

NPI and continued recovery to drive growth.

  • New products/ services initiatives (NPI) in 2021 is expected to drive FY21 earnings higher. A number of these NPIs have been pushed back to FY21 due to the demand and supply disruption in FY20 as a result of the COVID-19 pandemic. However, due to the chip shortages, some of the NPIs could see a slight delay, likely to 2H21.

New growth opportunities in trending domains.

  • Going forward, besides the Life Science Technologies, Medical Devices/Equipment and Lifestyle and Wellness Consumer Products domains which Venture has already made good headway, the group is exploring other growth areas. These include the wide-ranging advances and growing applications of Photonics, Networking and Communications and Advanced Semiconductor-related Equipment domains.
  • Others would include the Battery Electric Vehicle industry and the Robotics, Automation and Artificial Intelligence domains.

Maintain BUY and target price of S$24.30.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2021-03-01
SGX Stock Analyst Report BUY MAINTAIN BUY 24.300 SAME 24.300