Following Maybank Securities’ upgrade to “buy” on Venture Corporation (Venture Corp), PhillipCapital has also upgraded its recommendation on the counter to “accumulate” from “neutral” previously.
To PhillipCapital analyst Paul Chew, Venture Corp’s revenue and PATMI for the FY2021 stood within his full-year expectations.
On Feb 25, Venture Corp saw earnings of $171.7 million for the 2HFY2021, up 22.3% y-o-y. Revenue for the 4QFY2021 was up 9.2% y-o-y at $905.4 million.
For the FY2021, Venture Corp reported revenue of $3.11 billion, up 3.1% y-o-y. FY2021 earnings stood 5.0% higher y-o-y at $312.1 million.
While semiconductor shortages persisted in the 4QFY2021, the group’s manufacturing managed to return to full capacity in Malaysia around September 2021, notes Chew.
As management has previously guided that demand for its services is robust based on the number of customer orders as well as forecast across all sectors, Chew is raising his PATMI estimates for the FY2022 by around 4%.
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To this end, he has also upped his target price estimate slightly to $20 from $19.20 previously, as he expects to see stronger growth in the FY2022.
The new target price is based on an FY2022 P/E of 16x, around the counter’s five-year average.
“Order pipeline is healthy across all verticals but the availability of components will dictate the ability to fulfil demand,” says Chew.
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He adds: “We believe Venture can better navigate these challenges with a record $1 billion build up in inventory and a higher readiness than in the past. The share price is supported by dividend yields of almost 5%, 13% return on equity (ROEs) and $808 million net cash.”
At the same time, analysts from CGS-CIMB Research, DBS Group Research and RHB Group Research have kept their “add” or “buy” calls on Venture Corporation, as its FY2021 results also stood in line with their expectations.
CGS-CIMB analyst William Tng has kept his target price unchanged at $23.32, along with his forecasts for the FY2022 to FY2023. His current target price stands at a target P/E multiple of 17.3x, 0.5 standard deviation above Venture Corp’s 20-year average of 15.1x.
To him, catalysts that could re-rate Venture Corp’s share price are new product launches by customers and improvements in component availability.
“The key downside risk on earnings is the ongoing supply chain disruptions which affect the availability of parts and components. Other potential headwinds include the emergence of new Covid-19 variants which may impact macroeconomic activities and potential disruptions/impact from the current Ukraine-Russia conflict,” he says.
DBS analyst Ling Lee Keng has also kept her target price unchanged at $22.60, which is still pegged to a P/E of 19x, near +2 standard deviation of its four-year average forward on her FY2022 earnings estimates.
Ling is positive on Venture’s 10% net margin for the FY2021, which was kept despite the challenging environment during the year.
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She also likes that the group has a strong net cash position of $807.9 million with no debt, which can support a repeat of its 75-cent per share dividend in the FY2022.
Furthermore, Ling remains upbeat on “Venture’s ability to continue investing to enhance its differentiating capabilities within its ecosystems in the longer term”.
“With a strong pipeline of orders and gradual easing of supply chain disruptions, we expect 2022 to be a strong year for Venture. We expect FY2022 earnings to grow by 11%, followed by another 7% in FY2023, from 5% growth in FY2021,” writes Ling.
“Key growth segments include life science, medical devices, semiconductor and lifestyle & wellness,” she adds.
However, a slowdown in the global economy, the weakening of clients’ end-demand, or the weakening of the US dollar could dampen Venture Corp's revenue growth, says Ling.
RHB analyst Jarick Seet has upped his target price estimate to $22.80 from $20.90. The higher target price is pegged to an FY2022 P/E of 19x.
Seet has also raised his PATMI estimates for the FY2022 by 10%.
Venture Corp, which is one of the brokerage’s top sector picks, saw NPAT for the 4QFY2021 outperform its estimates.
Like the rest of the analysts, RHB’s Seet expects FY2022 to see a stronger performance compared to that of FY2021’s due to the robust demand as well as backlog from the 4QFY2021.
“With the strong demand across a majority of its domains, we expect margins [in FY2022] to continue remain resilient,” he writes.
“However, key component shortages may continue to hamper the group’s ability to complete these orders. Nevertheless, it was able to deliver a strong 4QFY2021 despite such shortages, and we remain confident Venture Corp will see a strong rebound while component shortages also begin to slowly ease through the course of 2022,” he adds.
As at 4.59pm, shares in Venture Corp are trading 23 cents lower or 1.32% down at $17.20, or an FY2022 P/B of 1.8x and a dividend yield of 4.8%, according to PhillipCapital’s estimates.
Photo: Venture Corp
