Venture Corporation - UOB Kay Hian 2021-05-03: 1Q21 In Line; Expect Sequential Improvement From Strong Order Pipeline

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

Venture Corporation - 1Q21 In Line; Expect Sequential Improvement From Strong Order Pipeline

  • Venture Corp’s 1Q21 earnings (+8.8% y-o-y) are in line, accounting for 19% of our 2021 estimates. Earnings were lifted by better margins while revenue increased marginally.
  • Venture Corp continues to work on a variety of products to drive earnings growth and is seeing a strong order pipeline. Potential challenges include the ongoing supply disruptions for parts and components.
  • We expect a sequential improvement, similar to the trend in 2020 as Venture Corp works on fulfilling orders. Maintain BUY. Target Price: S$23.47.



VMS 1Q21 RESULTS


Results in line with expectations.

  • Venture Corp (SGX:V03) released an update for its 1Q21 results. The update did not provide a full set of financials but highlighted key financial figures.
  • Venture Corp's 1Q21 net profit came in at S$65.3m (+8.3% y-o-y). This accounted for 19% of our full-year estimates which we deem in line with expectations as we expect a similar seasonality trend as 2020 (1Q20 accounted for 22% of full-year earnings).

Marginal improvement in revenue, better bottom-line margin.

  • Revenue growth for the quarter was marginal at 2.0% y-o-y as global parts and component shortages curbed growth. That said, earnings outpaced revenue as better margins lifted earnings. Net profit margin came in at 9.5% in 1Q21, 0.5ppt higher than 9.0% in 1Q20.

VMS continues to work on variety of products and new opportunities.

  • Venture Corp highlighted that orders from its customers are showing broad-based growth across the group’s technology domains. Customer orders for several sophisticated, leading-edge products in the Life Science Technologies, Medtech Devices & Equipment, and Lifestyle & Wellness Consumer Technology domains are coming in strong, according to the group.
  • Furthermore, new products across the Instrumentation, Networking & Communications, Advanced Industrials and Advanced Semiconductor-related Equipment domains will be launched in response to the increasing needs for electronic test equipment, optical & photonics networking solutions and 5G infrastructure developments.


STOCK IMPACT


VMS not spared from global component shortage.

  • Although Venture Corp is seeing a strong pipeline order, the main impediment – similar to the many global manufacturers – is the ongoing supply disruptions for parts and components. In order to secure the parts and components to meet its shipment plans, Venture Corp has implemented joint initiatives with various external stakeholders such as its customers and partners, suppliers and components manufacturers and has swiftly set up several working groups to manage its global supply base.

Expect sequential improvement from strong pipeline of orders.

  • We expect 2021 to see a similar seasonality trend as in 2020, with sequential improvement in 2Q21 as the group fulfils its orders, assuming that the component shortage situation Venture Corp is facing improves.
  • Venture Corp has guided that it expects a better 2Q21 on a q-o-q basis, leading to an overall better 1H21 compared to 1H20.

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

  • As of end-1Q21, Venture Corp recorded net cash of S$990m (accounting for 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 dividends or better than that in the preceding year.


EARNINGS REVISION/ RISK


VALUATION/ RECOMMENDATION






John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-03
SGX Stock Analyst Report BUY MAINTAIN BUY 23.470 SAME 23.470



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