Analysts from CGS-CIMB Research and Citi Investment Research have maintained their “add” and “buy” calls on Venture Corp V03 with lower target prices of $16.80 and $17.60, down from $18.11 and $19.00, respectively.
Meanwhile, DBS Group Research's analyst Ling Lee Keng has maintained her "hold" recommendation with a lower target price of $15.40, down from $16.40 previously.
In his report dated Aug 4, William Tng of CGS-CIMB says that Venture’s 1HFY2023 ended June results “disappointed”, with revenue declining 11.9% y-o-y to $1,582.2 million and net profit falling 19.7% y-o-y to $140.0 million.
These numbers came in 6.4% and 8.1% below Tng’s expectations for revenue and net profit during the period.
He notes that the decline in 1HFY2023 was due to a higher revenue base set in 1HFY2022, softening demand and ongoing inventory destocking from the company’s customers. Meanwhile, Tng adds that 1HFY2023 net profit margin of 8.8% was still within the 8% to 10% range that Venture’s management believes is a “reasonable target”.
The analysts highlight that Venture’s 1HFY2023 results included a 65.3% y-o-y increase in research and development (R&D) costs to $12.3 million, a 295.6% y-o-y increase in interest income to $12.5 million and a 5.4% decline in employee benefits expenses.
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While Venture has maintained its interim dividend per share (DPS) level of 25 cents for the first half of FY2023, Tng does not believe its 2HFY2023 will be “seasonally stronger” — as is the historical norm — given that the global outlook remains uncertain, constraining customers’ plans.
As such, his target price of $16.80 has been reduced to reflect the ongoing weakness in demand. The analyst has also lowered his FY2024 earnings per share (EPS) forecast to $1.10, from $1.20 previously.
Still, given Venture’s 5.22% dividend yield and potential for EPS growth resumption in FY2024 and FY2025, Tng is keeping “add” on the stock.
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He notes that beyond FY2023, Venture continues to work on new initiatives to drive revenue, profitability and working capital improvement, including proactively working with customers and partners who are interested to utilise Venture’s Southeast Asian manufacturing sites.
Similarly, Citi’s Jame Osman believes that despite Venture’s likely “subdued” near-term performance, its longer-term structural thesis remains intact.
Discussing the company’s underperformance for 2QFY2023, Osman says he “overestimated” the resilience of Venture’s diversified customer base as well as the pace of supply chain de-risking trends positively impacting electronics manufacturing services (EMS) players. “Nevertheless, we believe demand has bottomed, although uncertainty lingers,” he adds.
The analyst has cut his FY2023 to FY2025 EPS forecasts by 11% after “tempering” his revenue forecasts for Venture, and lowered his target price accordingly to $17.60.
“Despite near-term uncertainty, we believe Venture remains a structural beneficiary of supply chain relocation trends favouring outsourced manufacturing, while the company has made headway to diversify its customer base into growth domains,” says Osman, who adds that Venture’s net cash balance sheet and sustainable yield of over 5% remain “key supports”.
Ling of DBS has roll over her target price of $15.40 on a reduced 13.5x FY2024 earnings forecast. "In the longer term, we remain positive on Venture’s ability to monetise its unique offerings and differentiating capabilities when the global economies recover," she says.
Osman's downside risks include a destruction of demand if customers undertake mergers and acquisitions, labour shortages as a result of original equipment manufacturers looking for new supply chain alternatives and an unexpected slowdown in economies that could hurt technology spending.
As at 4.21pm, shares in Venture were trading 47 cents or 3.27% down at $13.91, representing a dividend yield of 5.16%.
