Venture Corporation - DBS Research 2021-05-03: Strong Orders Marred By Supply Disruptions


Venture Corporation - Strong Orders Marred By Supply Disruptions

  • Tepid 2% y-o-y growth in 1Q21 revenue, impacted by chip shortage; below expectations.
  • Orders remain strong despite the chip shortage.
  • Expect q-o-q improvement in 2Q21, leading to a stronger 2H21.
  • Cut Venture Corp's FY21F/FY22F earnings forecast by 8% each; maintain BUY with lower target price of S$22.70.

1Q21 impacted by chip shortage

  • Tepid 2% y-o-y growth in revenue, both existing products and NPI impacted by chip shortage. Venture Corp (SGX:V03) reported 1Q21 revenue of S$686.7m (+2% y-o-y, -17.1% q-o-q).
  • Venture Corp's 1Q21 revenue accounts for 20% of our FY21F forecasts. The weaker-than-expected revenue was mainly due to the global parts and components shortages. Both the existing products and new product initiatives (NPIs) were affected. Venture Corp has already set up several working groups to implement comprehensive tactical plans to mitigate the supply challenges in the subsequent quarters.

Commendable net margin of 9.5% but net profit only accounts for 19% of ours and consensus forecasts, below expectations.

  • Venture Corp's 1Q21 net margin improved from 9.0% in 1Q20. Traditionally, 1H net margin is weaker than 2H. In the last three years, net margins for 2H were about 2 to > 100 basis points higher than 1H. Net profit of S$65.3m (+8.3% y-o-y, -23.2% q-o-q) accounts for only 19% of ours and consensus FY21F forecasts, below expectations.

Strong cash position.

  • Venture Corp's net cash position increased to S$989.6m as at 31 March 2021, from S$928.7m as at end-4Q20.

Orders remain strong, despite the chip shortage.

  • Orders from Venture Corp’s customers are showing broad-based strength across the Group’s diverse technology domains. 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 is working towards launching new products across the Instrumentation, Networking & Communications, Advanced Industrials and Advanced Semiconductor-related Equipment domains, in response to the increasing needs for electronic test equipment, optical & photonics networking solutions and 5G infrastructure development.

Resolution of the supply disruption is still key.

  • Though Venture Corp is seeing a strong pipeline of orders, the ongoing supply disruptions for parts and components may hinder order fulfilment. Venture Corp is already working with its customers and partners, suppliers and components manufacturers, to secure the parts and components to meet its shipment plans.

Expect q-o-q improvement in 2Q21, leading to a stronger 2H21.

  • On the back of the strong order flow and Venture Corp’s efforts to secure the parts and components, we expect to see a quarterly improvement, with 2Q being better than 1Q, and leading to a stronger 2H21 vs 1H21. 1H20 accounted for 45%/44% of FY20 revenue and net profit, mainly due to the COVID-19 pandemic. For FY21F, we are also expecting a stronger contribution in 2H.

Cut FY21F/FY22F earnings by 8% each.

  • On the back of the supply disruptions for parts and components, we have cut Venture Corp's FY21F and FY22F earnings forecast by 8% each. We have trimmed revenue projections by 3% and also lowered net margins to 9.8%/9.9% for FY21F/FY22F, from 10.3%/10.4% previously.

Maintain BUY on Venture Corp with lower target price

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2021-05-03
SGX Stock Analyst Report BUY MAINTAIN BUY 22.70 DOWN 24.300