CGS-CIMB Research analyst William Tng has maintained his “add” call on Venture Corp Ltd V03 , albeit at a lowered target price of $16.61 from $16.80 previously, ahead of the company’s 3QFY2023 business update which is likely to see further earnings decline.
In his Oct 11 report, Tng notes that he had expected the group’s 2HFY2023 earnings to be similar to 1HFY2023’s $140 million, on revenue of $1.58 billion.
However, with softening demand amid ongoing customer inventory destocking, he now expects Venture to report earnings of $64 million in its 3QFY2023 business update, down 34.3% y-o-y and down 3.6% q-o-q.
As demand from its customers could remain soft, Tng is cautious in his view of Venture’s FY2024 and FY2025 prospects. He estimates a “reasonable” 5% revenue growth during the period against Bloomerg’s consensus revenue growth expectations of 5.2% for FY2024 and 7.8% for FY2025 as at Oct 6.
Citing margins pressure because of lower revenue, Tng has trimmed his FY2024 and FY2025 earnings forecast by 2.4% and 2.9% respectively.
Given the gloomy outlook, the analyst has lowered his valuation multiple of 15.2x FY2025 earnings to 14.6x FY2025 earnings, as well as lowering his FY2025 earnings per share (EPS) forecast by 2.9% due to the slower revenue growth resulting in a 0.3 ppts decrease in net profit margin.
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However, as Venture’s net cash balance as at end Jun FY2023 continues to stand at $895.6 million and capital expenditure (capex) requirements over FY2023 to FY2025 look limited, Tng expects the company to maintain a dividend per share (DPS) payout of 75 cents.
Re-rating catalysts noted by the analyst include new product launches by customers, further improvements in component availability and further business opportunities arising from corporations keen to diversify their production orders from China to Malaysia.
Conversely, noted key downside risks include the ongoing supply chain disruptions affecting the availability of parts and components, impacting production, labour shortages potentially lowering production output and lastly, a worsening global economic outlook potentially further reducing orders from customers.
As at 2.54 pm, Venture shares changed hands at $12.34, unchanged for the day.
