Venture Corporation

DBS on 27 Feb 2012

ALL business segments outperformed despite industry-wide weakness in Q4 FY2011. Core profit of $36.8 million (-32 per cent y-o-y, +6 per cent q-o-q) was in line with consensus but much better than our forecast of $31 million. Sales of $632 million (-10 per cent y-o-y, +8 per cent q-o-q) also trumped our estimated $619 million.

Adjusted net margin of 5.8 per cent was a shade better than our 5.5 per cent assumption, although still 10 basis points weaker q-o-q. Printing & Imaging (P&I) (+12 per cent q-o-q) and Computer Peripherals (+25 per cent) surged the most, coming off an exceptionally low base in Q3 FY2011 and with new launches in the quarter. For the full year, revenue dropped 9 per cent while net profit declined 17 per cent. Operating results were more resilient in US dollar terms as sales declined just one per cent y-o-y.

FY2012 recovery may start slow but outlook is notably positive. Besides capturing full year benefit of new P&I models launched towards the end of 2011, several new Industrial and Test & measurement products are also slated to release in H2 FY2012. By and large, Venture has seen better traction with key customers and gained market share. We raised FY2012/13F earnings by 12-14 per cent to factor in better-than-expected sales momentum and slightly better margin.

Upgrade to Buy, TP raised to $9.50, to factor in revised estimates and a re-rating to 15x PE (mean) from 11x (-1 standard deviation). Apart from 22 per cent upside on share price, stock also pays 7 per cent yield.
BUY