Venture Corporation - CGS-CIMB Research 2021-04-30: Component Shortage Bites

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Component Shortage Bites

Venture Corp’s revenue rose 2.0% y-o-y in 1Q21, held back by component shortages.
1Q21 net profit at 17%/19% of ours/consensus full-year forecast was below the 8-year historical average of 21%.
We lower our revenue forecasts, leading to a lower S$22.51 target price for Venture Corp.

We deem Venture Corp (SGX:V03)'s 1Q21 revenue at 18%/20% of ours and consensus FY21F revenue expectations to be a miss compared to the historical 8-year average of 23%.
With the tepid 2.0% y-o-y revenue growth, 1Q21 net profit at 17%/19% of ours and consensus full-year expectations was also below the 8-year historical average of 21%. 1Q21 revenue was held back by the current ongoing component shortage in the electronics manufacturing industry.
1Q21 pre-tax profit and net profit grew 7.2%/8.3% y-o-y. Pre-tax profit and net profit margins of 10.9%/9.5% in 1Q21 (1Q20: 10.4%/9.0%) could be due to effective cost management (no detailed financials were released).

Venture Corp guides that it expects quarter-on-quarter improvement in 2Q21 leading to a stronger 1H21 compared to 1H20. The company highlighted that orders from customers are showing broad-based strength across the group’s various business segments. In particular, in the Life Science Technologies, Medtech Devices & Equipment, and Lifestyle & Wellness Consumer Technology domains, customers’ orders for several sophisticated, leading-edge products are coming in strong.
Venture Corp also expects to benefit from new products being launched in segments such as Instrumentation, Networking & Communications, Advanced Industrials and Advanced Semiconductor-related Equipment domains.
The key challenge currently is the ability to fulfill customers’ orders due to the supply disruptions for parts and components. To address this, Venture Corp has set up several working groups to manage its global supply base and implement joint initiatives with various customers to secure the requisite components.

Factoring in the potential impact from component shortages, we cut our Venture Corp's FY21F-23F revenue forecasts by 3-5%, leading to 7-10% cuts in our earnings estimates.
To better appreciate the long-term valuation of Venture Corp, we switch our target P/E multiple to 17.1x (0.5 s.d. above its 20-year average of 15.1x). Previously, we ascribed a target P/E multiple of 18.5x (0.5 standard deviation above its 14-year average of 15x). Rolling over to FY22F, our target price is cut to S$22.51.
See
Re-rating catalysts are new product launches by customers.
A worsening of the COVID-19 and component shortages are downside risks.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-30

SGX Stock Analyst Report ADD MAINTAIN ADD 22.51 DOWN 24.840