Venture Corporation - OCBC Investment 2021-11-08: Positive Outlook Despite Supply Constraints In 3Q21

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Positive Outlook Despite Supply Constraints In 3Q21

Venture Corp's 3Q21 marred by component shortages and mobility restrictions; looking forward to NPI mass production.
Leadership changes a slight positive in our view.
Fair value estimate of S$21.07.

Venture Corp (SGX:V03)’s 9M21 results came in under expectations. 3Q21 revenue fell ~5.9% y-o-y to S$769.9m, while profit of S$77.0m was down 4.0% y-o-y. Fulfilment of strong demand from customers/partners in 3Q21 was hampered by the global components shortages and the Extended Movement Control Order in Malaysia (from June 2021).
Venture Corp's 9M21 net profit of S$217.4m was ~67% that of consensus. Still, we note that net margin was robust and maintained at 10% in 3Q21 (broadly stable q-o-q and y-o-y).

On the issue of sporadic lockdowns, we note that most of Venture Corp’s employees (if not all) were able to return to work since Sep 2021, given more than 92% of Venture’s employees were fully vaccinated, while more than 96% of workforce in Malaysia were fully vaccinated by end-Sep21.
Venture Corp is also separately focused on various pathways to secure delinquent parts/components. The company notes that the demand/forecast for the group’s services, products and solutions were healthy and broad-based in 3Q21, and expects this positive trend to continue for the next 12 months.
We note that Venture Corp is seeing strong trends in New Product Introductions (NPI) activities, which the group expect to flow through to mass production at its manufacturing sites over the next 12 months.

Venture Corp has also recently announced that Mr. Wong Ngit Liong will be stepping down as CEO while remaining as the Executive Chairman of the Board. Mr. Lee Ghai Keen (current COO) will be promoted to CEO while Mr. Wong Chee Kheong (current SVP of the Group’s Healthcare and Wellness Business, Global Supply Base Management & IT), will be appointed as COO.
In our view, this development is a slight positive as it addresses concerns over succession planning, while at the same time likely to result in some measure of continuity in strategy moving forward.
Following adjustments, we roll forward our valuations, and after applying a target P/E of 18.17x (inclusive of a 15% ESG premium following its rating upgrade), our fair value estimate for Venture Corp eases from S$21.66 to S$21.07.
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Venture Corp’s ESG rating has been upgraded in Aug’21. The company’s overall ESG performance has shown improvement, relative to peers, thus driving the upgrade. The inclusion of the Corporate Behavior theme has increased emphasis on the company’s business ethics practices and on exposure to risks related to corruption.
Venture Corp operates predominantly in Singapore, where inducements to corrupt business practices is perceived to be low. Further, Venture Corp’s anticorruption framework, like that of peers, has provisions for whistleblower protection.
Venture Corp is engaged in advanced manufacturing and design solutions, which may pose lower exposure to the risk of potential reformulation costs, relative to industry peers.
We note that while Venture Corp, like most peers, offers employees compensatory benefits such as stock option plans, it appears to lack engagement channels to monitor workplace satisfaction.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-11-08

SGX Stock Analyst Report BUY MAINTAIN BUY 21.07 DOWN 21.66