RHB Group Research’s Jarick Seet has maintained his “buy” call on Venture Corp and an unchanged target price of $22.60.
In a Feb 2 report, Seet said Venture Corp has continued its recovery trajectory, reporting a 14.2% q-o-q growth in net profit after tax to $80.2 million in 3QFY2020 ended September.
See: https://www.theedgesingapore.com/news/results/venture-corp-reports-3qfy20-earnings-802-million-down-59-y-o-y
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He said the company’s management expects to deliver stronger 2HFY2020 vs 1HFY2020 – provided Covid-19-induced lockdowns and disruptions do not deteriorate further.
Seet added 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 in early 2021.
These products include fast-growing domains and ecosystems such as life science & genomics, healthcare & wellness, as well as Covid-19-related detection, testing, and diagnostic products and solutions.
Demand for medical devices & equipment, networking & communications, and semiconductor correlated modules & equipment also appears unabated, he notes.
To maintain margins, VMS continues to work with its customers in implementing further cost controls and improving production efficiency. However, Seet thinks “average selling prices (ASP) pressures will align to end-market demand, and that non-essential market segments may see some pressure, given the slower rate of recovery.”
SEE: RHB maintains 'buy' on Venture Corp on continued recovery trajectory
Furthermore, he thinks that production is highly unlikely to go back to pre-COVID-19 levels due to social distancing. He added VMS’ main aim now is to meet customer demand, as well as how to balance orders and deliver such orders to clients.
Given the company’s increasing client diversification, its top 10 customers now form 45- 55% of revenue vs 50-60% previously.
Seet then pegged VMS to a higher price to earnings (P/E) multiple of 19x to reflect its resilient margins and stability vis-à-vis its peers.
On the dividend front, the company prefers to give long-term stable and sustainable dividends. It declared a higher interim dividend of 25 cents for 1HFY2020, compared to 20 cents for 1HFY2019.
“Assuming the final dividend remains unchanged, FY2020 dividend will likely increase 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 further improves.” he concludes.
As at 11.15am , shares of Venture Corp were trading at $20.02, with a FY2020 book ratio of 2.2.
