RHB analyst Jarick Seet has maintained his “buy” call on Venture Corp with an unchanged target price of $22.60, as the company has continued its recovery trajectory, which is in line with the brokerage’s estimates.
“Management expects to deliver a stronger 2HFY2020 vs 1HFY2020 – provided COVID-19-induced lockdowns and disruptions do not deteriorate further. The group is currently fulfilling its backlog of existing orders while its research & development (R&D) labs have plans to subsequently release a number of newly developed products into manufacturing early 2021,” says Seet in a report dated Dec 22.
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The way Seet sees it, production is unlikely to return to its pre-Covid-19 levels at the moment due to the social distancing measures.
“[Venture Corp’s] top 10 customers now form 45-55% of revenue vs 50-60% previously, given the increasing client diversification,” notes Seet.
On that, Seet sees the company trying its best to maintain its margins despite the lower revenue.
“VMS continues to work with its customers, implementing further cost controls and improving production efficiency. Average selling price (ASP) pressures will align to end-market demand, in our view. Non-essential market segments may see some pressure, though, given the slower rate of recovery,” he says.
However, growth is seen in several segments within the company, including new products and solutions that are being scheduled for release in 1H2021 and 2H2021.
“These include fast-growing domains and ecosystems such as life science & genomics, healthcare & wellness, as well as COVID19-related detection, testing, and diagnostic products and solutions. Demand for medical devices & equipment, networking & communications, and semiconductor correlated modules & equipment also appear unabated,” says Seet.
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On this, Seet views “a clearer path ahead” for the company.
“We peg Venture Corp to a higher multiple of 19x to reflect its resilient margins and stability vis-à-vis peers. On the dividend front, the company prefers to give long-term stable and sustainable dividends,” he says.
“It declared a higher interim dividend of 25 cents (compared to 20 cents in 1HFY2019). Assuming the final dividend remains unchanged, FY2020F dividend will likely be raised to 75 cents, which represents a 3.9% yield. We think this is highly sustainable and shareholders are likely to continue enjoying higher dividends if the group’s performance continues to improve,” he adds.
Shares in Venture Corp closed 6 cents lower or 0.3% down at $19.25 on Dec 22.
