Venture Corporation - UOB Kay Hian 2021-11-05: 3Q21 Results Below Expectations; Customer Demand Remains Healthy

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - 3Q21 Results Below Expectations; Customer Demand Remains Healthy

Venture Corp (SGX:V03)'s 3Q21 earnings of S$77m (-4% y-o-y/+3% q-o-q) missed our expectations by 7%, with 9M21 accounting for 68% of our 2021 estimates. The weaker-than-expected results are due to sporadic lockdowns and critical shortages of chips.
Venture Corp continues to see a strong customer demand. We expect the sequential improvement trend to continue, but at a lower magnitude. We trim our 2021 and 2022 EPS by 7%. Maintain BUY call on Venture Corp and reduce target price by 7% to S$22.04 (pegged to +1 standard deviation, 19.5x 2022F PE).

Venture Corporation’s 3Q21 net profit came in at S$77m (-4% y-o-y/+3% q-o-q). 9M21 net profit accounted for 68% of our full-year estimates. The weaker-than-expected results were due to global components shortages and the extended Movement Control Order (MCO) in Malaysia which started from Jun 21.
Although earnings missed expectations, we deem the sequential improvement as a commendable achievement, as it comes despite a challenging environment. Despite facing problems such as a critical shortage of chips and sporadic lockdowns, Venture Corporation’s manufacturing workforce worked conscientiously to overcome many setbacks to achieve a sequential improvement in revenue and net profit. This translated into a stable net margin of 10% for 3Q21. In addition, Venture Corporation has fully vaccinated more than 92% of its employees and most of them have been able to return to work since Sep 21.
Positive demand/forecast outlook from customers. In its outlook statement, Venture Corporation highlighted that its customers’ demand outlook continues to be healthy and broad-based. Venture Corporation expects this positive trend to continue for the next 12 months. Several new products will be launched into the markets globally. Venture Corporation is also seeing healthy introduction activities for its new products, which are expected to go into mass production over the next 12 months.

To achieve greater excellence, Venture Corporation will continue to invest to strengthen its globally-linked clusters of excellence, expand its talent pool in the areas of science and technology capabilities, and deepen its value proposition through synergistic acquisition opportunities.
Expect marginal sequential improvement from strong pipeline of orders. We expect Venture Corporation to see a similar seasonality trend in 2021 as in 2020, with sequential improvement q-o-q as the group fulfils its orders, assuming that Venture Corporation is able to overcome the challenges of component shortages. We expect Venture Corporation to achieve a better 2H21 compared to 1H21.
Strong balance sheet and good dividends provide limited share price downside. As of end-3Q21, Venture Corporation recorded net cash of S$853m (accounting for about 15% of its current market cap) and led the pack of US-listed peers which were mostly in net debt positions. More importantly, Venture Corporation has consistently paid the same amount of dividends or better than that in the preceding years.

We have reduced our 2021-23 earnings by 6-7% to account for potential challenges from component shortages, supply chain disruptions and temporary production disruptions from COVID-19 measures.

Maintain BUY call on Venture Corporation with a 7% lower target price of S$22.04 (S$23.57 previously), pegged to +1 standard deviation above its forward mean P/E, of 19.5x on 2022F earnings. At the current price, Venture Corporation tractive dividend yield of 4.0%.
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John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-11-05

SGX Stock Analyst Report BUY MAINTAIN BUY 22.04 DOWN 23.570