SINGAPORE (July 12): CGS-CIMB Research is downgrading Venture Corporation to “hold”, from “buy” previously, on the back of lower revenue growth forecasts amid fears that the trade war between US and China could escalate further.
“If the situation escalates into a full-blown trade war, costs will generally increase and demand will be affected,” says analyst William Tng in a Wednesday report.
“We think that MNCs may ask suppliers to help offset the additional tariff-induced costs,” Tng says. “The bigger worry is cuts in spending by MNCs as they turn cautious given these uncertainties.”
Adopting a more cautious stance and factoring potential revenue headwinds, CGS-CIMB is cutting Venture’s average revenue growth over FY18-20 to 7.3% -- the average rate achieved by the group in FY14-16.
The brokerage is also lowering its target price-to-earnings (PE) multiple to 12.3 times, and slashing its FY18-20 earnings per share (EPS) forecasts by between 8.7% and 14.5%.
Consequently, CIMB-CGS has cut its target price for Venture to $17.83, from $25.64 previously.
However, Tng notes that Venture has not yet seen any changes as a result of the trade war. According to Tng, Venture has also reiterated that it is targeting growth in FY18.
“The company is in constant contact with its customers to manage the situation,” he says. “Despite the threat from higher costs due to the tariff impact as well as the ongoing component shortage, we leave our margin assumptions intact as we assume that Venture will continue to manage costs well.”
As at 11.56am, shares of Venture Corp are trading 36 cents lower, or down 2.2%, at $16.31. This implies and estimated PE multiplier of 12.1 times and a dividend yield of 3.2% for FY18.
