RHB Group Research hosted a non-deal roadshow (NDR) for Venture Corporation lately and is remaining “neutral” on the stock with a target price of $20.20.
Some of the key takeaways from the NDR include: Venture will likely see a steady recovery in 2H20, and is fulfilling the backlog of orders now; and earnings visibility is clear for 2H20, as Venture’s research & development segment aims to release new products for manufacturing companies from early 2021.
However, production is unlikely to revert to pre-Covid-19 levels, due to social distancing measures. Hence, Venture now aims to meet demand, balance orders between customers, and deliver products and services to them efficiently.
Its top 10 customers now account for 45-55% of revenue, compared to 50-60% in previous years. Customers are also becoming increasingly diversified.
Despite lower revenues, the group is still trying to maintain its margins.
“Venture continues to work with its customers, implementing further cost controls and improving production efficiency. ASP pressure will align to end-market demand, in the meantime. Non-essential market segments may see some pressure, given the slower rate of recovery,” says lead analyst Jarick Seet in an August 26 report.
Meanwhile, as the economy reopens, Venture is seeking increased orders from some of its customers, mainly from the life sciences, medical devices & equipment, networking & communications and semiconductor-related equipment domains. Venture has also gained meaningful traction with its new customers, including its existing semiconductor partner in 2Q20.
For its shareholders, Venture likes to give out long-term stable and sustainable payments. It declared a higher interim DPS of 25 cents in 1H20 from 20 cents a year ago.
“ Assuming the final dividend remains unchanged, the FY20 DPS will likely be raised to 75 cents from 70 cents – which indicates approximately 4% FY20 dividend yield,” says Seet.
“We believe this ratio is highly sustainable, and shareholders would likely continue to enjoy higher dividends if the company’s performance continues to improve,” he adds.
As at 1.15pm, shares in Venture are trading at $20.33, giving it a FY20 price-to-earnings (PE) ratio of 19.1 times, which is above its 10-year historical PE.
