SINGAPORE (Apr 26): Analysts are slashing their target prices for Venture Corporation by as much as 25%, just one day after the electronics manufacturer posted a 72.2% surge in earnings for the 1Q ended March.
See: Venture sees 72% surge in 1Q earnings to $83.7 mil on higher margins
“Given the current poor sentiment and concerns over earnings growth for tech manufacturing services companies arising from the trade/tech tensions between the US and China, valuations are likely to revert to the historical mean,” says CIMB Research analyst William Tng.
“Even a good company cannot fight market sentiment,” he adds.
As such, CIMB is lowering its valuation of Venture to an 11-year average price-to-earnings (P/E) ratio of 15.4 times, from 17.7 times previously.
CIMB is keeping its “add” rating on Venture, but cutting its target price to $25.64, some 16.8% lower than the previous target of $30.81.
Already, Venture has seen its stock price retreat by around 22% over the past week, after its customer Philip Morris International (PMI) reported slower-than-expected growth in sales for its IQOS heat-not-burn electric cigarette devices in Japan.
“PMI management commented that it is an issue of speed of growth and not decline in sales, and reiterated PMI remains on track to meet their full-year sales target for IQOS,” says OCBC Investment Research lead analyst Eugene Chua.
“We estimate PMI contributed approximately 10% of [Venture’s] FY17 revenue. Hence, it seems unjustifiable for the plunge in [Venture’s] share price, which suggests wiping out more than PMI’s contribution to [Venture],” he says.
OCBC is keeping its “buy” call on Venture, but lowering its fair value estimate to $30.00, from $34.00 previously.
Meanwhile, Credit Suisse has downgraded Venture to “neutral”, from “outperform” previously, and slashed its target price by a hefty 25% to $24.00 on the back of limited earnings visibility and lack of near-term catalysts.
“What is more significant is the disappointment in the main [test & measurement (T&M)]/Medical segment where there is limited visibility of near-term growth acceleration,” says analyst Dawei Lee.
Credit Suisse is reducing its revenue growth forecasts to 5-8% for FY18-20, and lowering its earnings estimates by 7-13%.
Conversely, UOB Kay Hian analyst Foo Zhi Wei opines that broad-based growth in Venture’s T&M/Medical and Network/Communication segments are likely to continue.
“We note that its clients in the key T&M/Medical segments such as Agilent, Keysight and Thermo Fisher are expecting strong revenue growth, with consensus forecasting 10-16% y-o-y growth for all three clients,” says Foo.
“Networking and communication is also expected to see strong double-digit revenue growth, driven by Broadcomm,” he adds. “These will likely be the key focus for growth post the unexpected demand slowdown for IQOS in Japan.”
However, Foo says that a lack of clarity over a recent short sell report has “severely damaged” market sentiment on Venture.
“Management did little to address issues raised in the short sell report, and weakened sentiment has resulted in a multiples de-rating,” Foo says. “The market will likely de-rate [Venture’s] valuation until greater clarity is achieved.”
UOB is keeping is “buy” call on Venture, but lowering its target price to $25.00, from $30.60 previously.
RHB Research lead analyst Jarick Seet, however, believes that the selling over the past few days has been overdone.
Venture is “one of the few in the Singapore tech sector reporting a positive 1Q18,” Seet says.
“Going forward, the signs of slowdown have appeared in some of its peers, as well as in the semiconductor industry. It has not affected Venture yet, partially, in our view, due to its well-diversified client base,” he adds.
RHB is maintaining its “buy” recommendation on Venture, but lowering its target price to $26.00, from $30.50 previously.
On a more positive note, Maybank Kim Eng Research analyst Lai Gene Lih opines that Venture’s growth prospects remain favourable.
“We continue to believe that [Venture] has multifaceted growth drivers and see the recent correction as an even more attractive opportunity to ‘buy’,” says Lai. “Management reiterated that growth remains broad-based across its 100 active customers.”
In addition, Lai says a sustained pick-up in research and development could portend interesting FY19/20 prospects.
Maybank is keeping its “buy” call on Venture, but cutting its target price to $28.83, from $31.20 previously.
As at 3.58, shares of Venture are trading 12 cents down at $22.45. According to Maybank valuations, this implies an estimated price-to-earnings ratio of 15.3 times and a dividend yield of 2.9% for FY18.
