VENTURE CORPORATION LIMITED (SGX:V03)
Venture Corporation - Disrupted Quarter
- Results were below forecast. Venture Corp (SGX:V03)'s 3Q21 PATMI declined 4% y-o-y to S$77mil. year-to-date21 Revenue and PATMI were 66% and 63% respectively.
- Fulfilment of customer orders disrupted by global components shortages and the Extended Movement Control Order (or factory closures) in Malaysia.
- We are lowering our FY21e revenue and PATMI forecast for Venture Corp by 6% and 10% respectively. Recovery this quarter has been stalled due to production disruptions. Venture Corp mentioned that demand is healthy and broad-based demand. In addition, the workforce in Malaysia is almost fully vaccinated, which should allow manufacturing activities to resume as normal. We expect some spill-over of orders into 4Q21.
The Positive
Healthy balance sheet and margins.
- Net margins improved marginally to 10%. We assume the high-value low mix projects have been sustaining margins despite the weaker revenue and loss of operating leverage.
- Venture Corp's net cash was S$853mil at 3Q21. There was a spike in inventory by S$154mil y-o-y to S$908mil. We believe there is buffer inventory to cope with the unpredictability in component supply.
The Negative
Another weak quarter in revenue.
- Pre-pandemic, the quarterly run-rate in revenue was around S$900mil. This has dropped to S$700m this year. Venture Corp has struggled to keep revenues to pre-pandemic levels these past two years despite the global resurgence in electronics demand. The pivot to life science and consequent long timeline to ramp up is a factor, in our opinion.
- We expect Venture Corp's revenue to rebound in 4Q21e to S$916mil, an 11% y-o-y rise.
Outlook
- Venture Corp commented that new product introductions are expected to flow to mass production over the next 12 months.
Maintain NEUTRAL on Venture Corp with unchanged target price of S$19.20
- Our FY21e and FY22e PATMI forecast for Venture Corp is lowered by 10% and 11% respectively.
- We maintain our NEUTRAL recommendation. Our target price is rolled over to 16x P/E FY22e, its 5-year average.
- Re-opening and removal of lockdown should ease pressure on the supply chain in FY22e. Venture Corp's share price is currently supported by dividend yields of 4.5%, 11% ROEs and S$853mil net cash.
- See
Paul Chew
Phillip Securities Research
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https://www.stocksbnb.com/
2021-11-05
SGX Stock
Analyst Report
19.200
SAME
19.200
