UOB Kay Hian’s John Cheong has maintained his “buy” call and target price of $22.04 on Venture Corp, expecting the contract manufacturer’s 4QFY2021 earnings (ended 31 Dec) to come in at $79.5 million, versus consensus estimates of $91.4 million
In a Feb 11 report, Cheong points out that five out of ten of Venture’s customers have reported healthy revenue growth. They include Broadcomm, NCR, Thermo Fisher, Fortive and Waters.
More importantly, Cheong says all five customers are guiding for revenue growth for 2022. This trend is consistent with Venture’s latest outlook statement which highlighted that its customers’ demand outlook continues to be healthy and broad-based. (see chart below)
Source: UOB KH
Venture expects this positive trend to continue for the next 12 months, and several new products will be launched into the markets globally.
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It is also seeing healthy introduction activities for its new products, which are expected to go into mass production over the next 12 months.
Separately, Cheong highlights relaxed restrictions since Sep 2021 have allowed the majority of Venture’s workers to return to work, which improves production capacity.
Since Sep 2021, most of the states in Malaysia have entered into phase 2 and 3 of its National Recovery Plan (NRP), where manufacturing companies are allowed to operate at full capacity.
See also: P&G to invest over $100 mil to set up new manufacturing facility in Singapore
Venture had a soft 3QFY2021 due to the extended MCO in Malaysia in June 2021, but the company has highlighted that it has fully vaccinated more than 92% of its employees, and most of them have been able to return to work since Sep 2021.
“Based on the positive developments with the relaxed restrictions of the workforce, coupled with pent-up customers’ demand, we think that Venture’s production output should see notable improvement q-o-q,” Cheong highlights.
Finally, he highlights the share purchases from executive chairman Wong Ngit Leong, who acquired 200,000 shares at $18.73 per share on Nov 8, 2021.
Cheong thinks that this is a “strong positive signal”, noting that when the last share repurchase by Wong occurred in 2017, Venture’s share price hit an all-time high of $29.50 in Apr 2018.
At the time, Wong acquired 566,300 shares at an average price of $14.45 per share from July-September 2017.
Venture also has a strong balance sheet and good dividends, which provide limited share price downside, according to Cheong.
“As of end-3QFY2021, Venture recorded net cash of $853 million and led the pack of US-listed peers which were mostly in net debt positions. More importantly, Venture has consistently paid the same amount of dividends or better than that in the preceding years,” he adds.
As at 10.47am, shares of Venture Corp traded at $18.18, with a FY2021 price to book ratio of 2 and dividend yield of 4%.
