Venture Corporation - Maybank Research 2022-08-07: Late-cycle Thesis Playing Out, BUY

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VENTURE CORPORATION LIMITED (SGX:V03)

Venture Corporation - Late-cycle Thesis Playing Out, BUY

Beat on demand and margin resilience

• Venture Corp (SGX:V03)'s 1H22 PATMI of S$174.3m (+24% y-o-y) reached 49% of our and street estimates (1H typically accounts for 45-47%). This was driven by:
  1. improved supply;
  2. strong demand; and
  3. margin resilience.
• We now base our target price on FY23E P/E (from FY22E) on an unchanged multiple of 17.2x. As such, our target price for Venture Corp rises to S$22.90.
• We believe our thesis of Venture Corp being a late-cycle beneficiary is playing out, given broad-based demand strength, which we expect to continue in 2H22. BUY.

Margin resilience despite inflationary pressure

• Venture Corp's 2Q22 revenue rose 21.6% y-o-y to S$906.8m, bringing 1H22 revenue to S$1.8b (+25.4%). All 7 domains registered growth.
• 2Q22 PBT margin of 12.2% (+0.7% q-o-q, +0.6% y-o-y) expanded despite inflation pressure due to productivity gains and differentiating abilities to value add to customers amid challenging conditions.
• Inventory rose by ~S$200m to S$1.25b to support customer fulfilment, although management aspires to improve working capital if the supply situation allows for it. Receivables and payables were stable h-o-h.

Demand to be sustained in 2H22

• Venture Corp characterises the current environment as one of “supply lagging demand”, and expects 2H22 demand to be sustained h-o-h. Resilience is broad-based, particularly in life science & genomics, healthcare & wellness, networking & communication, test & measurement and process & test equipment in semiconductor technology.
• See
  • Venture Corp's Share Price,
  • Venture Corp's Target Price,
  • Venture Corp's Analyst Reports,
  • Venture Corp's Dividend History,
  • Venture Corp's Announcements,
  • Venture Corp's Latest News.

Risks

• Despite the beat, our forecasts are unchanged, reflecting our conservative stance in view of an environment prone to risks, such as:
  • softening demand;
  • unforeseen supply problems; and
  • exogenous disruptions.
• Amid the global economic slowdown, the top 2023 risk is if orders decline, in our view.

Gene Lih Lai CFA Maybank Research | https://www.maybank-ke.com.sg/ 2022-08-07

SGX Stock Analyst Report BUY MAINTAIN BUY 22.90 UP 21.000