Analysts are all keeping their “add” or “buy” calls on Venture Corporation V03 as the company’s results for the FY2022 ended Dec 31, 2022, exceeded the expectations of the consensus.
CGS-CIMB Research analysts William Tng and Izabella Tan have kept their “add” call with an unchanged target price of $20.10 as Venture Corp’s FY2022 results came “in line” with their expectations at 103% of their full-year forecasts. The analysts’ target price is based on a 22-year average forward P/E of 15.2x.
“We note that FY2022 results bring Venture’s performance benchmark back to the pre-pandemic levels,” write Tng and Tan. “Profitability wise, Venture’s pre-tax and net profit margin were relatively stable at 11.6%/9.6% in FY2022 versus 11.6%/10.0% in FY2021.”
In their report, the analysts note Venture’s concern for the short-term future on the back of the uncertain global macroeconomic and geopolitical environment. However, they are positive on the company’s longer-term prospects with its strategy to continue its sharp focus on deepening its partnerships with customers to create outstanding innovative products and services.
Tng and Tan are also positive about Venture’s strategy to scale up its businesses.
That said, the ongoing supply disruptions are a key concern, as well as the labour shortages and weakening global economic outlook. On the other hand, new product launches by customers and improvements in component availability is deemed to be an upside risk.
See also: Test debug host entity
DBS Group Research analyst Ling Lee Keng, who retained her “buy” call, also kept her target price unchanged at $20.10, which is pegged to a five-year average P/E of 15x on blended FY2023/FY2024 earnings.
Based on her estimates, Venture Corp’s FY2022 revenue stood 3.6% above her projections while its net profit stood 1.6% higher than expected.
“The revenue growth reflects robust customer demand in several technology domains and new product introductions during the year. Healthcare & wellness, life science & genomics and test & measurement instrumentation technology domains were significant contributors to the overall performance,” she writes.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
She adds that the group’s FY2022 results reflected a “commendable” net margin of 9.6% despite the challenging environment and inflationary pressures.
Like her peers at CGS-CIMB, Ling sees near-term pressures due to the macroeconomic slowdown that has affected demand though Venture could be less affected than its peers given its exposure to higher-end consumer products where demand in less volatile.
Furthermore, Venture’s products, especially in life sciences, healthcare & wellness and medical, also have a longer shelf life, Ling adds.
“Going forward, Venture will continue to invest in the development of new differentiating capabilities in multiple technology domains to pave the way for future growth. Key areas of focus include domains with structural long-term growth potential such as life sciences, medical and healthcare,” she writes.
In the meantime, the analyst has lowered her earnings estimates for the FY2023 and FY2024 by 4% each to account for the cautious near-term outlook.
“As a leading global provider of technology services, products and solutions, Venture is best known for its superior and differentiating capabilities in engineering, manufacturing and research and development (R&D) and providing high-mix, high-value, and complex manufacturing,” says Ling. “With its diversified product mix and blue-chip customers base, Venture is in a sweet spot to capture new opportunities in emerging technology domains.”
Key risks, in her view, are the global economic slowdown, the weakening of Venture’s clients’ end demand, as well as the weakening of the US dollar (USD), which could dampen revenue growth.
For more stories about where money flows, click here for Capital Section
Maybank Securities analyst Jarick Seet has kept his “buy” call with an unchanged target price of $20.20 as Venture’s revenue and earnings for the 4QFY2022 exceeded his estimates.
The company’s dividend of 75 cents for the FY2022 also stood in line with Seet’s expectations.
As Venture expects FY2023 to be a challenging year due to the macro headwinds, Seet has cut his FY2023 and FY2024 earnings by 7% and 11% respectively to reflect the slower growth expected.
However, he believes in the longer-term outlook for the company. “[Venture’s] management remains confident of its long-term prospects and continues to deepen its partnership with customers to create outstanding innovative products and to scale up its businesses,” he notes.
To this end, Venture remains one of Seet’s preferred picks for the Singapore technology sector due to its “excellent execution track record even in tough times”.
Seet’s unchanged target price is based on an FY2023 P/E of 16.2x.
RHB Group Research analyst Alfie Yeo has also kept his “buy” call but with a lower target price of $22 from $23.30 previously. Yeo is the only analyst to tweak his target price, which is based on 16x of Venture’s FY2023 earnings, and 0.5 standard deviation (s.d.) from its historical P/E mean.
The lower target price is based on a recalibration of his valuation peg. It has also factored in a reduction of his earnings estimates for the FY2024.
“We re-peg our target P/E to 16x from 19x, which is at a more reasonable +0.5 s.d. from its four-year historical P/E mean (previously +2 s.d.),” he says.
“As Venture has an environmental, social and governance (ESG) score of three out of four – which is on par with our country median – we ascribe a 0% ESG discount or premium to our target price,” he adds.
Like the rest of his peers, Venture’s FY2022 earnings came within Yeo’s full-year estimates. As such, his earnings forecasts for FY2023-FY2024 are “marginally unchanged”.
“[However], we did trim [our] FY2024 earnings [estimate] by about 5% to $433 million, and moderated its expected growth rate from to 8% y-o-y from 13% y-o-y,” he writes.
“Our higher revenue estimate stems from better-than-expected revenue traction and customer demand, while our margin assumptions have been pared down to higher operating costs, i.e. near the current run rate,” he adds.
As Venture’s FY2022 earnings normalised to pre-pandemic levels, Yeo is remaining “upbeat” on the company’s prospects. “Management’s strategy to offer differing solutions remains intact,” he says.
In addition to the changed valuation peg, Yeo’s lowered target price also factors in his reduced FY2024 earnings estimates.
“Downside risks to our forecasts include decelerating demand in the global environment, resource shortages including component, labour and supply chain constraints,” he says.
Shares in Venture closed 21 cents higher or 1.24% up at $17.09 on March 6.
