Venture Corporation - UOB Kay Hian 2022-04-25: Expect Healthy Earnings Growth In 1Q22 On The Back Of Positive Outlook


Venture Corporation - Expect Healthy Earnings Growth In 1Q22 On The Back Of Positive Outlook

  • We expect Venture Corporation to report 1Q22 earnings of S$78m (23% of 2022), representing a 20% y-o-y growth. The strong growth will be driven by:
    1. robust demand outlook from VMS’ customers,
    2. improvement in the global component shortages, and
    3. easing of border restrictions and restrictive measures in Malaysia.
  • Venture Corporation is trading at an attractive valuation of 2022F ex-cash P/E of 12x vs its clients’ average P/E of 28x along with a dividend yield of 4.7%. Maintain BUY and target price of S$22.80.

Robust demand outlook from Venture Corp’s customers.

  • In the list of Venture Corporation (SGX:V03)’s customers that we track, all the customers are guiding for revenue growth in the range of 5- 16% y-o-y for 2022. This trend is consistent with Venture Corporation’s latest outlook statement which highlighted that it expects a robust demand outlook based on customers’ orders and forecasts across various technology domains.
  • In the life science domain, demand for products in the area of analytical instruments remains strong. Growing trends in next-generation sequencing and other breakthrough technologies where its R&D labs are engaged in are driving demand.
  • Positive market momentum is also visible across instrumentation, test and measurement, networking and communications, as well as advanced industrials domains.
  • More importantly, we believe Venture Corporation could capture higher growth than its customers’ revenue growth, given its ability to provide customised solutions for new product launches and entry into new high-growth domains.
  • Positive guidance of key customers:
    • Broadcomm: Expects 1Q22 revenue growth of 14% y-o-y.
    • NCR: 2022 guidance of 12-15% y-o-y revenue growth and 27-39% y-o-y EPS growth.
    • Agilent: 2022 guidance of 7% y-o-y revenue and EPS growth.
    • Fortive: Expects 2022 revenue growth of 7% y-o-y.
    • Keysight: Expects 2022 revenue growth of 5% y-o-y.
    • Illumina: Expects 2022 revenue growth of 14-16% y-o-y.
    • Waters: Expects 2022 revenue growth of 6% y-o-y.
    • Philip Morris: Expects 2022 revenue growth of 4-6% y-o-y and EPS growth of 8-11%.

Improvement in global component shortages.

  • In Venture Corporation’s response to questions received from shareholders pre-AGM dated 21 Apr 22, it highlighted that the global components shortage is easing for some parts and by working closely with its customers and suppliers, Venture Corporation has created several pathways to overcome the shortage problem. In addition, our channel check with other manufacturing companies also suggests that the global component shortages are easing due to the reopening especially in Japan and Korea.
  • Also, in Feb 22, Hon Hai, the biggest assembler of iPhones, highlighted that a major improvement in part shortages is likely in the first quarter, with overall supply constraints set to ease in the second half of the year.

Malaysian plants should enjoy improved production capacity from removal of COVID-19 restrictions.

  • Since Jan 22, all the states in Malaysia, where Venture Corporation has the most of its manufacturing facilities in, have entered into Phase 4 of the National Recovery Plan (NRP), where the COVID-19 and movement restrictions have all been removed. To recap, Venture Corporation reported a soft 1Q21 due to the movement control in Malaysia and global component shortages.

Positive signal from recent share purchases of the Executive Chairman.

  • On 8 Nov 21, Mr Wong Ngit Leong, the Executive Chairman and largest shareholder of Venture Corporation, acquired 200,000 shares at S$18.73/share. Previously, his acquisition of 566,300 shares at an average price of S$14.45/share from Jul-Sep 17 turned out to be a strong positive signal as Venture Corp's share price hit an all-time high of S$29.50 in Apr 18.
  • Venture Corp remains positive on its long-term growth as it continues to engage and collaborate with successful and innovative customers in various high-growth, fast expanding market segments.

Strong balance sheet and good dividends provide limited share price downside.

  • As of end-21, Venture Corporation recorded net cash of S$808m (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.

Venture Corp - Earnings forecast & recommendation

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-04-25
SGX Stock Analyst Report BUY MAINTAIN BUY 22.800 SAME 22.800