Company Overview: Venture Corporation (VMS SP) is a Singapore-based technology company with a current share price of SGD8.03 and a target price of SGD9.50, representing an 18% increase. The company has a market capitalization of SGD2.2B and an average daily trading volume (ADTV) of USD3M.
Stock Recommendation: Maybank maintains a "BUY" recommendation, with the target price raised to SGD9.50 based on FY15E forecasts, still aligning with a target P/E of 16x.
Main Points
2Q14 Performance:
Revenue grew by 2% YoY to SGD601m.
Net profit increased by 12% YoY to SGD34m.
Net margin improved to 5.6% in 2Q14, up from 5.2% in 1Q14 and 5.1% in 2Q13.
1H14 net profit rose by 11% YoY to SGD64m, which is 44% of the FY14E forecast.
Growth Drivers:
Life Sciences (LF) and Networking & Communication (NC) are the main growth drivers for 2014.
LF growth is attributed to new customers successfully launching products like genetic sequencers and lifestyle healthcare devices.
NC growth is driven by Oclaro's shift from China to Malaysia.
M&A Outlook:
M&A activities among Venture's customer base are ongoing but not expected to significantly impact the company's performance.
Orders from top customers like Intermec and Micros have not been affected.
Venture is currently engaging with Honeywell, Intermec's buyer, to manage potential impacts.
3D Printing:
The 3D printer business is gaining momentum and is expected to be a significant growth driver in 2015.
Venture is developing "several" models for its Singapore-based customer, up from one model previously.
R&D costs have increased in 2Q14 and are expected to remain elevated.
Revenue from 3D printers is expected to grow from low single digits in 2014 to high single digits in 2015.
Key Financials
FYE Dec (SGD m)
FY12A
FY13A
FY14E
FY15E
FY16E
Revenue
2,387.7
2,329.6
2,448.7
2,544.2
2,716.3
EBITDA
177.0
177.3
200.2
229.9
240.4
Core net profit
139.7
131.2
145.9
162.7
176.3
Core EPS (cts)
50.9
47.8
53.2
59.3
64.2
Core EPS growth (%)
(10.9)
(6.1)
11.2
11.5
8.4
Net DPS (cts)
50.0
50.0
50.0
50.0
50.0
Core P/E (x)
15.8
16.8
15.1
13.5
12.5
P/BV (x)
1.2
1.2
1.2
1.2
1.2
Net dividend yield (%)
6.2
6.2
6.2
6.2
6.2
ROAE (%)
7.6
7.2
8.0
8.9
9.5
ROAA (%)
5.7
5.4
6.0
6.6
7.0
EV/EBITDA (x)
10.9
10.6
10.3
8.9
8.4
Net debt/equity (%)
net cash
net cash
net cash
net cash
net cash
Share Price Performance
Absolute Performance:
1 month: +4.2%
3 months: +10.3%
12 months: +10.2%
Relative to Index:
1 month: +4.0%
3 months: +8.9%
12 months: +8.2%
Market Recommendations
Metrics
Maybank Consensus
Neutral Negative
Target Price (SGD)
9.50
8.60
'14 PATMI (SGDm)
146
146
'15 PATMI (SGDm)
163
165
Financial Highlights
Net Profit:
2Q14: SGD33.5m (up 11.6% YoY)
1H14: SGD64.3m (up 10.7% YoY)
EBITDA:
2Q14: SGD46.4m (up 6.0% QoQ, 6.8% YoY)
1H14: SGD90.3m (up 9.6% YoY)
Working Capital:
2Q14: 29.5% of sales (down 0.5% QoQ, up 1.4% YoY)
Inventory days: 81 (flat YoY)
Receivable days: 77 (up 12% YoY)
Payable days: 52 (down 1% QoQ, up 5% YoY)
Free Cash Flow:
2Q14: SGD97.8m
1H14: SGD158.9m
Dividend Cover:
2Q14: 1.0x
1H14: 1.2x
Payout Ratio:
2Q14: 98.2%
1H14: 84.4%
Segmental Breakdown
Segment
2Q14 (SGD m)
1Q14 (SGD m)
2Q13 (SGD m)
QoQ (%)
YoY (%)
Comments
Test & Measurement/Medical/Others
182.4
165.9
165.9
7.7%
18.4%
Growth led by Life Sciences segment
Networking & Communications
94.1
95.8
95.8
6.5%
4.6%
Growth led by Oclaro's relocation from Shenzhen to Malaysia
Computer Peripherals & Data Storage
65.4
67.7
67.7
-15.0%
-17.9%
Normal segmental volatility
Retail Store Solutions & Industrial Products
195.0
186.4
186.4
1.3%
-2.8%
Normal segmental volatility
Printing & Imaging
70.3
71.9
71.9
-3.6%
-5.7%
A key customer's new product did not do well, but not due to Intermec
Strategic Outlook
M&A Impact:
M&A activities among customer base are not expected to severely impact Venture.
Orders from Intermec and Micros have not been affected.
3D Printer Business:
The 3D printer business is on track to be a bigger growth driver in 2015.
Venture is developing several models for its Singapore-based customer, indicating a strategic shift towards more advanced products.
Future Outlook:
The company is optimistic about the potential of the 3D printer business.
It is working on improving payable days to enhance cash flow and potentially raise dividends in the future.
Summary
Venture Corporation is a Singapore-based technology company with a strong focus on growth and margin improvement.
The 2Q14 results showed slight underperformance due to higher tax and R&D costs, but there were positive trends in revenue and net profit.
The company's main growth drivers are Life Sciences and Networking & Communications, with the 3D printer business expected to gain more traction in the coming year.
Despite M&A activities among its customer base, Venture is confident that these will not significantly affect its performance.
The company is working on improving working capital and cash flow, which could lead to potential dividend increases.
Maybank maintains a "BUY" recommendation with a target price of SGD9.50, based on FY15E forecasts.
