For one, DBS is maintaining “buy” with a higher target price of $26.00, pegged to a PE multiple of 19.5x on blended FY18/19 earnings, or a 10% premium to peer average of 17.5x forward PE. This comes on the back of higher earnings estimates driven by better sales and margin expectations.
DBS says margin improvement was the key story in 3Q17 and demonstrates the group’s continued success in value-creation through increased design content and uniqueness in the broader Electronic Manufacturing Services (EMS) space, with exposure to attractive end-markets such as genome sequencing and networking and communications.
“Expectations of double-digit growth at key industry clusters provides strong visibility for Venture’s revenue growth prospects,” says DBS analyst Carmen Tay, “Management guidance of a higher net margin range also raises our confidence in Venture’s ability to sustain margins at a historical high level.”
Looking ahead, OCBC says Venture’s 9M17 margins expansion is sustainable as it continues to pursue its strategy of value creation for its customers by engaging in research and development (R&D) work alongside its customers.
Revenue growth in 3Q17 was driven by a diversified revenue base, continuing strong execution of customers’ programmes and deepening of collaborative partnership with strategic customers, say analysts.
“We expect Venture to continue to capture additional opportunities to further grow its revenue, which will likely comprise higher proportion of design content,” says Eugene Chua.
Since FY12, Venture’s 4Q earnings have consistently been the strongest in each financial year and Chua expects this trend to continue in FY17, raising its FY17–FY21 PATMI forecasts by 15%–20%.
The analyst also sees much room for Venture to potentially raise its dividend, which has been 50 cents/year since FY08.
“Reiterate “buy” on VMS as we increase our fair value estimate from $20.33 to $23.00,” says Chua.
Shares in Venture are down 6 cents at $21.39 or 18.3 times FY17 earnings.
