Analysts are positive on Venture Corporation’s outlook as it is poised for a steady recovery.
This came despite Venture reporting a 5.9% y-o-y drop in its latest 3QFY2020 earnings on Nov 6 to $80.2 million. Revenue also saw a 5.8% y-o-y dip to $818.4 million.
The company attributes the growth to strong, broad-based demand from its customers in life sciences, medical devices, healthcare, networking and semiconductor sectors.
See: Venture Corp reports 3QFY20 earnings of $80.2 million, down 5.9% y-o-y
In a Nov 9 report, DBS Group Research has kept its “buy” recommendation on Venture with a higher target price of $24.30.
On a q-o-q basis, 3QFY2020 was the second consecutive quarter of earnings growth, and analyst Ling Lee Keng expects another quarterly growth in 4Q20, albeit at a more muted rate of 8% q-o-q, compared to 16.4% in 2QFY2020 and 14.2% in 3QFY2020.
3QFY2020 was the first full quarter without much of the disruption from Covid-19 as demand and supply were affected by the pandemic in 1HFY2020. With the situation normalising in 3QFY2020,
Venture was able to fulfill most of the order backlog from 1HFY2020, for both essential and non-essential products, which was much faster than the analyst’s earlier expectations.
“With its diversified geographical footprint, Venture is poised to benefit from the shift in supply chain. Beyond FY2020, demand momentum is expected to remain strong,” says Ling.
Maybank Kim Eng also has reiterated its “buy” recommendation on Venture with an increased target price of $23.27 from $18.46 previously.
Analyst Gene Lih Lai says, “During the 3QFY2020 reporting season, a common theme was customers’ broad-based optimism towards new products and pipeline. We are excited by this as it signals positive end-market receptivity. This corroborates with Venture’ expectation for new products to be released from its R&D labs into manufacturing throughout 2021, including in fast growing domains.”
Some of the “fast growing domains” include the life science & genomics, medical devices & equipment, healthcare & wellness, networking & communications and semiconductor equipment domains. On the other hand, bright spots in end-markets include the return of elective surgeries, 5G deployment, increased focus on R&D to protect against future health threats, and government spending.
Similarly, CGS-CIMB Research continues to rate Venture “buy” with an increased target price of $24.84 from $20.14 previously.
Analyst William Tng expects Venture to benefit from its client Philip Morris and its I Quit Ordinary Smoking (IQOS) products. Overall, the IQOS momentum remains healthy. With 16.4 million users as at end-September 2020, an increase of 1.1 million users q-o-q and 4.1 million increase y-o-y.
Philip Morris is also intending to bring more IQOS innovations into the market in the coming quarters and expanding into more markets.
Conversely, PhillipCapital is less upbeat on Venture as it has a “neutral” call on Venture with a target price of $18.60.
Although Venture recorded stable profit before tax (PBT) margins of 11.4%, due to the higher mix of products in life science & genomics, medical devices and healthcare & wellness and the strong demand for essential healthcare products, revenue came in lower than expected.
In a Nov 9 report, analyst Paul Chew says, “We had expected a spillover of revenue from 2QFY2020 when factories were closed because of lockdown. It seems orders in 3QFY2020 were softer than expected, likely due to macro headwinds.”
“Moving into 2021, we anticipate a recovery led by new products that Venture mentioned would be released by customers. These will likely be in the healthcare sector, including Covid-19 related detection, testing and diagnostic products. Another driver of growth could be an improvement in macro conditions,” adds Chew.
As at 2.55pm, shares in Venture are trading at $20.73, or 19.6 times FY2020 earnings with a 4.0% dividend yield, according to PhillipCapital’s estimates.
