SINGAPORE (Feb 28): Despite the Covid-19 outbreak threatening to disrupt supply chains and introduce production bottlenecks and component shortages, analysts have identified opportunities for Venture Corporation to tap on during this period of trouble.
In a Thursday report, CGS-CIMB lead analyst William Tng says that Venture is poised to benefit from companies seeking alternative manufacturing partners with facilities outside China to help them tide over the current situation, which could in turn provide new revenue streams for the company even after the resolution of the virus outbreak.
Tng adds that Venture could also thrive on customers having an additional impetus to diversify their manufacturing locations, even though this could be incrementally more expensive.
“The risks presented by the Covid-19 outbreak are real. On the economic front, a global pandemic will eventually slow the economy or lead to a recession, with negative impact on end demand for Venture’s customers’ products,” says Tng.
“What is more notable is Venture’s guidance that it anticipates a stronger 2HFY2020, supported
by traction with its new and existing partners. Venture commented that it will be supporting new product introductions by its existing partners across multiple selected technology domains, such as life science, healthcare and wellness, instrumentation, and networking and communications,” he adds.
RHB Group Research analyst Jarick Seet agrees, stressing that Venture remains relatively cushioned from the effects of the virus.
“With the global supply chain disrupted due to the outbreak, especially in China, Venture swiftly implemented a corrective action plan to stabilise its assured supply,” says Seet in a Friday report.
“As the majority of its manufacturing capacity remains outside of China, operations have not been impacted. Management expects to fulfil most, if not all, orders,” adds Seet.
To be sure, FY2019 was a good one for Venture, and its recent set of results saw the group outperform analysts’ expectations. The group reported earnings of $96.3 million for 4QFY2019 ended December, some 10% lower than earnings of $107.7 million in the corresponding quarter last year. This translated to full-year earnings of $420 million, a marginal decline of 3.0% from FY2018’s earnings of $433 million.
Despite the lower earnings, Venture chose to maintain its yearly dividend payout of 70 cents per ordinary share, including a 20 cents interim dividend that was paid in September 2019, and a proposed final dividend of 50 cents. .
However, revenue for the quarter climbed 2.9%to $932.1 million, which the group had attributed to a sequential growth from its diverse portfolio of customers.
See: Venture Corp maintains full-year dividend of 70 cents even as 4Q earnings dip 10% to $96.3 mil
The way DBS Group Research analyst Ling Lee Keng sees it, Venture is poised to face a slow 1QFY2020, but is slated for a strong comeback thereafter.
“1QFY2020 could be weak due to Covid-19 outbreak but the group expects to fulfil customers’ orders in 2QFY2020 as well as the backlog from 1QFY2020. A stronger 2HFY2020 is on the cards, with new product introductions and new partners coming onstream,” shares Ling.
“We remain positive on Venture’s ability to continue to invest into expanding its differentiating capabilities within its ecosystems of interest. This will further strengthen its existing partnerships and secure new customers,” adds Ling.
Similarly, Maybank Kim Eng’s lead analyst Lai Gene Lih opines that Venture could well be a beneficiary of the Southeast Asian footprint, as it supports new product introductions across domains such as life science and genomics, as well as beauty and wellness.
“D-Lab conducted an investor sentiment poll in the first half of Feb 2020. Of 21 respondents, 52.4% are bullish on Venture’s share price performance in 2020,” notes Lai.
“We expect Venture to resume y-o-y earnings growth in 2HFY2020 as it ramps up production of new products for customers. [Venture’s] operating margins should be steady from more products with higher R&D content & cost control,” adds Lai.
With a strong set of results, Venture has garnered “buy” calls from all four brokerages.
DBS, CGS-CIMB and RHB have increased their target prices to $18.50, $17.66 and $19.30 respectively. Meanwhile, Maybank is maintaining its target price of $18.23 for the group.
As at 1.55pm, shares in Venture Corp are trading nine cents lower, or 0.55% down, at $16.42 amid a wider market slump.
