SINGAPORE (July 15): Shares in electronics manufacturer Venture Corporation have fallen a long way since April last year, when it dived spectacularly after a steady two-year climb.
Venture’s stock price broke through a previous high of $10.00 in January 2017, and streaked to a dizzying height of $28.82 in early April 2018 – threatening to break the psychological level of $30.00.
And then it all crumbled.
First, Philip Morris, for which Venture supplies parts for its IQOS heat-not-burn cigarette device, reported first-quarter profit down 41% from the previous period, marking the first such decline in five quarters.
Around the same time, financial blog Valiant Varriors put out a short-seller report that claimed Venture was too exposed to the tobacco company.
The one-two combo proved too much for the manufacturing giant, which made matters worse by keeping its cards close to its chest and failing to reject the short seller’s arguments.
Over the short span of a few days, shares in Venture tumbled to close at $19.93 by the end of April 2018, losing close to a third of its market value.
Since then, its stock price has fallen even further. On July 12, shares in Venture closed at $14.90 – nearly halved from its peak in April last year.
Now, a guidance cut by another customer, Illumina, is raising fears that Venture could take another hit – and see an earnings decline in FY19F.
The Nasdaq-listed provider of sequencing and array-based solutions for genetic research has cut its FY19 revenue growth expectations to 6%, compared to its previous estimate of 13-14%.
However, investors are expected to can get more clarity on the impact of Illumina’s substantial cut in growth expectations on July 29, when it hosts its 2Q19 results call.
“Illumina’s products are supposedly more resilient given that they are not discretionary consumer electronics items. We think the lowering of guidance by Illumina is proof that the uncertainties and cautiousness caused by US-China tensions are affecting end-demand,” says CGS-CIMB Research analyst William Tng.
As such, CGS-CIMB is cutting is core earnings per share (EPS) forecasts by 11-12% over FY19-20F. This is “to reflect growing earnings concerns arising from macro conditions,” Tng says.
Consequently, the brokerage is keeping its “hold” call on Venture, but lowering its target price to $15.73, down 12% from $17.88 previously.
According to Tng, Venture’s long-term technical trend remains bearish.
"The price could test the $14.63 – $14.50 key support area next before a rebound takes over,” says Tng. “We expect the $15.55 – $16.07 resistance area to cap the upside move in the rebound.”
Shares in Venture closed 10 cents higher, or up 0.7%, at $15.00 on Monday.
According to CGS-CIMB valuations, this implies an estimated price-to-earnings (PE) ratio of 12.8 times and a dividend yield of 4.6% for FY19F.
