RHB Group Research’s Jarick Seet has upgraded his rating on Venture Corp from “neutral” to “buy” with a raised target price of $22.60, up from the previous target price of $20.60.
Seet said the company should “chart a steady recovery in 2H2020”, and noted that it is now fulfilling its backlog of orders, while its research & development laboratory plans to release some new products for the manufacturing segment in early 2021.
He also pointed out that Venture continues to work with its customers to implement further cost controls and improving production efficiency.
However, he points out that average selling price (ASP) pressure should align its rates to match end-market demand. Meanwhile, non-essential market segments may see some pressure, given their slower rate of recovery due to Covid- 19.
Seet also cautions that he does not expect production to rebound to pre-pandemic levels, due to social distancing measures.
He said Venture’s main aim, for now, is to meet customer demand, and balance its orders and deliveries. The company’s top 10 customers now account for 45-55% of revenue, vs 50-60% previously – due to the growing diversification of customers.
Venture’s customers that have seen increased orders are largely from the life sciences, medical devices & equipment, networking & communications, and semiconductor-related equipment industries.
See also: Venture upgraded to 'buy' by UOBKH on better growth prospects of clients
He also said Venture also gained meaningful traction with new customers (in Y-o-Y and Q-o-Q terms) – which also include an existing semiconductor partner.
The bright spot, Seet notes, is that Venture would be likely to continue rewarding investors, with the company declaring a higher interim dividend per share (DPS) of 25 cents, compared with 20 cents in 1H19.
Assuming the final dividend remains unchanged y-o-y, its FY2020F dividend will likely be raised to 75 cents from 70 cents, representing a 3.6% yield. He thinks this is highly sustainable, and investors should continue enjoying higher dividends ahead, if the company’s performance continues to improve.
As at 4.29pm, shares of Venture Corp were trading at $20.99, with a FY20 price to book value of 2.3 and dividend yield of 3.6%.
