SINGAPORE (June 6): Maybank Kim Eng Research is keeping its “buy” call on Venture Corp with an unchanged target price of $28.83 amid healthy revenue forecasts among its customers.
“We believe Venture remains a beneficiary of economic upcycle and multifaceted secular growth drivers,” says Lai Gene Lih in a report on Monday.
According to Lai, 10 out of Venture’s 16 well-known customers beat Street estimates in 1Q18, and 12 have raised or reaffirmed their guidance.
Consensus revenue for most of these customers have also been raised for FY18/19, he adds.
“Our dashboards suggest that its customers remain confident about their 2018 prospects, anchored by robust capex spending, especially in the US,” Lai says. “Venture’s customers have been benefiting from a strong and expanding US economy.”
“This corroborates what Venture has been sharing, that forecasts from its customers are healthy,” he says.
Already, the signs are pointing toward a healthier outlook for the electronics manufacturer.
“Global chip sales, a leading indicator of electronics demand, were up 19.8% y-o-y in March,” Lai says.
At the same time, he notes that Singapore electronics production grew 11.3% y-oy in April, while in Malaysia, where around 65% of Venture’s workforce is based, electronics exports increased 27% y-o-y in 1Q18.
In the 1Q18 ended March, Venture saw its earnings surge 72.2% to $83.7 million on the back of an improvement in net margin, which rose 4 percentage points to 9.8%.
1Q18 revenue edged up 1.5% to $856.0 million, from $843.1 million a year ago.
The group attributed the marginal increase to a weakened US dollar. In US dollar terms, revenue for 1Q18 would have grown by 9.1%, it reported.
See: Venture sees 72% surge in 1Q earnings to $83.7 mil on higher margins
Despite the earnings surge, Venture’s share price has taken a beating, tumbling 25% since its April high.
In the wake of a short-selling attack, shares in Venture plunged 32.6% within three weeks to close at a low of $19.42 on May 2.
Venture’s troubles were exacerbated by claims that it was being affected by weakening sales of smokeless cigarette devices produced by Philip Morris International.
The group, however, has declined to sooth the jitters by divulging more specific information about its business segments. Instead, it has reiterated its position that doing so could impair its competitive position.
See: Could 'secretive' Venture sooth market jitters by clearing the smoke?
“As we approach its seasonally stronger 3Q and 4Q, earnings deliveries and potential improved clarity from management are expected to provide catalysts,” Lai says, noting that the recent share price decline has been due to “cyclical concerns” and “operational ‘opacity’”.
“A stronger USD would also be positive for Venture and Singapore tech companies,” he adds.
As at 12.40pm, shares in Venture Corp are trading 6 cents higher at $21.69, implying an estimated price-to-earnings ratio of 12.5 times and a dividend yield of 3.2% for FY19.
