Venture Corporation - OCBC Investment 2022-03-07: Robust Underlying Demand Across A Number Of Domains

VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Robust Underlying Demand Across A Number Of Domains

Venture Corp (SGX:V03)'s 4Q21 above expectations; full-year dividend of S$0.75.
Improving supply situation though challenges remain; 200k share purchase by Chairman in Nov’21.
Fair Value of S$19.66.

Venture Corp’s 4Q21 results came in above expectations. Revenue grew 9% y-o-y to S$905m, or ~3% above consensus. Profit grew 10% y-o-y to S$95m, thus bringing full-year profit to S$312m, which comes in slightly above expectations. Net margin for the quarter was also at a commendable level of 10.5%.
Venture Corp declared a final dividend of S$0.50, bringing full-year dividend to S$0.75.

Venture Corp noted that the improving supply situation was thanks to the taskforces that were set up previously to manage its global supply base, and to secure parts and components to meet shipment plans. However, we understand that there remain challenges in fulfilling all shipments in 4Q21, so some backlog has been pushed to 1Q22, while component shortages are yet to be fully resolved.
Nonetheless, strong underlying demand is still observed across a number of tech domains, such as life sciences and analytical instruments.
We note that most of Venture Corp’s workers in Malaysia have returned to facilities starting in 4Q21, which aided in the revenue momentum. Management has also shared that it is developing a roadmap to make further inroads into the semiconductor value chain as it observes significant growth opportunities ahead given the structural longer-term demand.
We also note that Mr. Wong Ngit Liong (Executive Chairman) also previously purchased 200k shares back in Nov-2021 at ~S$18.73 each, which we believe reflects his confidence in Venture Corp’s longer-term prospects.
While the above are broadly encouraging, we choose to adopt a more conservative target P/E multiple of 16.6x (5-year mean, inclusive of a 15% ESG premium) to cater for valuation multiple compression across tech names and geopolitically-driven supply chain concerns. Coupled with other adjustments, our fair value estimate for Venture Corp eases from S$21.07 to S$19.66.
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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.
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/ 2022-03-07

SGX Stock Analyst Report BUY MAINTAIN BUY 19.66 DOWN 21.070