Venture Corporation Limited – Another type of disruption May 3, 2021 341

PSR Recommendation: NEUTRAL Status: Maintained
Target Price: 19.20
  • 1Q21 revenue and PATMI rose 2% and 8% YoY respectively. Profit growth is below our forecast of +17%. Net cash was a record S$989mn.
  • We had expected a stronger rebound from last year’s low base caused by pandemic disruptions.
  • Order pipeline is strong but fulfilment is affected by short supply of parts and components.
  • Maintain NEUTRAL. Our target price is unchanged at 16x FY21e P/E, its 5-year average P/E. We are leaving forecasts intact, optimistic that order momentum will build up in the rest of the year, notably for life science, medtech devices and consumer wellness.

 

The Positives

+ Stellar balance sheet, record net cash. Net cash as at end-March 2021 was S$989mn. A record for VMS. Operating cash flow built up from higher earnings and stable working capital. We expect higher dividends from its large cash hoard and improving operating environment.

 

+ Margins expanded despite sluggish sales growth. 1Q21 PBT margin of 10.9% was an improvement over 1Q20’s 10.4% and above 2015-16 margins of 8% when revenue was at similar levels. VMS’ shift to more sophisticated and leading-edge products was a major contributing factor, in our opinion.

 

 

The Negative

– Revenue growth sluggish. 1Q21 revenue only expanded 2% YoY. This was paltry considering 1Q20 revenue had collapsed 27.5% YoY under severe disruptions of supply chains in China and Malaysia. VMS attributed this year’s weakness to shortages of parts and components.

 

 

Outlook

Company has guided for: 1) QoQ improvement in 2Q21 earnings; a 2) a stronger 1H21 YoY; 3) broad-based strength across domains; 4) strength in leading-edge healthcare products; and 5) an impending launch of new semiconductor and networking products.

 

 

Maintain NEUTRAL with unchanged TP of S$19.20

Our forecasts are unchanged as we expect stronger revenue momentum in the coming quarters.

 

#Note – There was no results briefing or detailed financials for 1Q21. Only an executive summary and general comments were furnished.

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About the author

Profile photo of Paul Chew

Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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