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

Venture Corp

OCBC on 27 Feb 2012

Venture Corp (VMS) reported its 4Q11 results, which came in mostly in line with our estimates. Revenue fell 10.3% YoY but rebounded 8.4% to S$632.5m, or around 5% below our forecast; net profit fell 29.8% YoY but also grew 7.3% QoQ to S$38.0m, or 0.4% above our estimate. And as expected, VMS has declared a final cash dividend of S$0.55/share, unchanged from last year. Going forward, we note that the outlook is not as negative, with VMS expecting to see a better picking from 2H12 onwards. And given that the market is now adopting a more “risk-on” approach, we also raise our valuation peg from 10x to 12.5x, which in turn raises our fair value to S$7.83 (S$6.18 previously). Maintain HOLD given the limited upside.

4Q11 results mostly in line
Venture Corp (VMS) reported its 4Q11 results, which came in mostly in line with our estimates. Revenue fell 10.3% YoY but rebounded 8.4% to S$632.5m, or around 5% below our forecast; net profit fell 29.8% YoY but also grew 7.3% QoQ to S$38.0m, or 0.4% above our estimate. FY11 revenue slipped 9.1% to S$2,432.4m, or just 1.4% below our forecast, while net profit fell 16.8% to S$156.5m, it was 0.7% above our estimate. And as expected, VMS has declared a final cash dividend of S$0.55/share, unchanged from last year; this after ending the year in a net cash position to the tune of S$309.1m.

Outlook not as negative
Going forward, we note that the outlook is not as negative, with VMS expecting to see a better picking from 2H12 onwards; this as it anticipates improved traction with several key customers this year. VMS further adds that it expects to capture full-year revenue from products launched towards the end of 2011; in fact, a number of new products in all business segments are at the threshold of market release. Nevertheless, 1Q12 is traditionally a slow quarter; and management further notes that it is cognizant of the uncertainty in the global economy and the relative weakness in some customers’ business.

Worst like over
The group achieved a net margin of 6.4% in FY11, and with the worst likely over, we expect net margin to improve further to 6.8% this year. However, it is still possible that we may not see much top-line growth, given that VMS may continue to focus on low-volume high-mix business. As such, we are easing our FY12 revenue forecast down by 1% and earnings up by 1%. And given that the market is now adopting a more “risk-on” approach, we also raise our valuation peg from 10x to 12.5x, which in turn raises our fair value to S$7.83 (S$6.18 previously). Maintain HOLD given the limited upside. 

Venture Corp

Kim Eng on 27 Feb 2012


Within expectations, reduce to Hold. Venture reported a 9.1% YoY decline in FY11 revenue to $2,432.4m, while net profit fell by 16.8% YoY to $156.5m. The results were in line with our forecasts and dividends were maintained at an expected 55 cents per share, implying a 7.0% yield. We maintain our target price of $8.45 but reduce our rating to Hold following the 27% run-up in share price YTD.


Dragged down by depreciating US$ and lower margins. The dip in overall revenue was attributed to translation effects of the US$ decline against the S$. Neglecting this effect, revenue would have fallen by a lower 1.0%. Other than the Test & Measurement and the Retail Store Solutions segments, each of the other three segments registered a YoY drop in revenue. Net margin came in lower at 6.4% compared to 7.0% a year ago, but this was still within the company’s targeted margin band of 6-8%. We also note that net margins have trended lower sequentially over the past four quarters.


Still resilient but no significant near-term catalysts. Venture’s business remains relatively resilient despite the challenges in FY11. While uncertainties continue into this year, the company is in the midst of launching several new products and aims to garner additional business from across other divisions of its customers. These could be the few bright spots to watch out for in 2012. Otherwise, we do not see any other significant near-term catalysts and would expect modest growth in FY12.


Firm financial footing. Venture continues to generate strong operating cash flows and maintains a solid balance sheet. Free cash flow for FY11 was $220.3m and net cash position at end-FY11 was $309.1m.
Reduce to Hold. We adjust our FY12F-13F net profit forecasts by 1.2-7.7%. Our target price is maintained at $8.45 based on a targeted yield of 6.5%. We downgrade the stock to a Hold as share price has risen by 27% YTD and is nearing our target price. Attractive dividends also warrant a Hold to wait out for positive signs for re-rating.