SINGAPORE (Aug 6): RHB Research is maintaining “buy” on Venture Corp while lowering its target price from $26 to $22.20, which is now pegged to 15.5 times FY18F P/E compared to 17.2 times previously due to the weaker industry outlook.
The research house nonetheless remains bullish on the stock after attending the group’s analyst briefing post the release of its 2Q18 financial results last Friday, which reflected a 40.2% on-year growth in profit despite lower revenue, due to higher margins.
In a Monday report, analyst Jarick Seet notes that the latest set of results have debunked rumours that I Quit Ordinary Smoking (IQOS) – which formed a large part of Venture’s overall revenue – along with drop in orders or weak Purchasing Managers’ Index (PMI) results would affect the group’s overall profit “severely”.
“Venture incurred higher research & development (R&D) expenses, as many new projects won came with design content. Still, these expenses can be recouped in several ways. Based on the milestone with customers, it can bill customers and related costs will be booked into P&L,” comments Seet.
“Management has revealed that higher R&D expenses will lead to higher margins and it is constantly looking to increase depth and value of design content with customer products, which involve product and technology development. It has also developed its own propriety product, which is distributed and sold globally and yields a net profit margin of 16-20%, explaining the significantly higher overall net margins, compared to electronics manufacturing services (EMS) peers,” he adds.
In all, the analyst expects Venture to pay out a total of 70 cents per share this year, representing a FY18F yield of 4.2%.
He however remains cognisant of the threats stemming from a possible escalation of the ongoing global trade war, which will “cause the whole economy to be affected and eventually influence Venture”, in his view.
As at 10.51am, shares in Venture are trading 10.1% higher at $18.71 or 2.23 times FY18F book.
