SINGAPORE (Apr 29): Analysts are mostly positive on Venture Corporation after it announced that its 1Q19 earnings have increased by 8.9% y-o-y to $90.9 million.
This was mainly due to an 8.5% y-o-y increase in revenue to $928.8 million, despite pricing pressures and intense competition in the business environment.
On a fully diluted basis, earnings per share (EPS) rose to 31.5 cents in 1Q19, compared to 28.8 cents in 1Q18.
See: Venture Corp reports 8.6% rise in 1Q earnings to $90.9 mil on higher revenue
OCBC Investment Research is keeping its “buy” call on Venture with a target price of $20.89.
The group’s results came in above the research house’s expectations, with core PATMI margin coming in at a 1Q record of 9.8%.
Despite the positive results, Venture may see 2Q19 impacted by customer product transitions as well as general cautiousness given the ongoing Sino-US trade tensions.
In a Friday report, analyst Joseph Ng says, “However, we believe that on a full-year basis, these headwinds should be more than offset by scheduled customers’ new product launches in 2H19, as well as contribution from newly acquired customers.”
To position itself for the long term, management noted that it is still expanding its presence in the area of life sciences, leveraging its strong reputation. The increasing complexity of equipment such those required for diagnostics will also present more value creation opportunities down the road.
Furthermore, with the group’s growth on track, DBS Group Research also continues to rate Venture a “buy” with a target price of $21.70.
In a Friday report, analyst Lee Keng Ling says, “Venture stands out for its hard-to-replicate ecosystems and unique positioning at the forefront of technology. Its coveted partnerships with global technological leaders across various attractive end-markets have allowed the group to command industry-leading margins and are testament to its success in the area of value-creation.”
Meanwhile, with record R&D expenses and inventory levels – possible leading indicators for the group - coupled with strong earnings outlook by key customers, the group provides confidence in its ability to at least sustain its robust growth momentum over the medium term.
On the other hand, Maybank Kim Eng believes that Venture’s near-term outlook is “cloudy”. Hence, it has downgraded its recommendation on Venture to “hold” from “buy”.
But Maybank has increased its target price to $19.74 from $19.23 previously to reflect the respectable set of results and its ROE-g/COE-g TP 3% on an unchanged price-to-book ratio of 2.2 times.
Venture has warned that near-term performance could be volatile as a result of customers’ product transitions into new generations, but highlights this will be mitigated by new product launches in 2H19.
In a Friday report, analyst Lai Gene Lih says, “The volatility may result in a tough YoY earnings comparison in the next quarter, in our view.”
While 2H19 is expected to be seasonally stronger than 1H19, VMS has hinted that the traditional 45:55 revenue seasonality pattern in 1H:2H may be less pronounced this year, mainly due to a mixed outlook from its broad base of more than 100 customers as a result of protracted trade tensions and the global economic slowdown.
“We recommend investors await a more attractive entry point, and/or when it is becomes apparent earnings volatility has passed,” says Lai.
As at 12.40pm, shares in Venture are trading at $17.58 or 2.2 times FY19 book with a dividend yield of 3.6%.
