• Results were below forecast. 3Q21 PATMI declined 4% YoY to S$77mn. YTD21 Revenue and PATMI were 66% and 63% respectively.
• Fulfilment of customer orders disrupted by global components shortages and the Extended Movement Control Order (or factory closures) in Malaysia.
• We are lowering our FY21e revenue and PATMI by 6% and 10% respectively. Recovery this quarter has been stalled due to production disruptions. The company mentioned that demand is healthy and broad-based demand. In addition, the workforce in Malaysia is almost fully vaccinated, which should allow manufacturing activities to resume as normal. We expect some spill-over of orders into 4Q21. We maintain our NEUTRAL recommendation. Our target price is rolled over to 16x PE FY22e, its 5-year average. Re-opening and removal of lockdown should ease pressure on the supply chain in FY22e. The share price is currently supported by dividend yields of 4.5%, 11% ROEs and S$853mn net cash.

The Positive

+ Healthy balance sheet and margins. Net margins improved marginally to 10%. We assume the high-value low mix projects have been sustaining margins despite the weaker revenue and loss of operating leverage. Net cash was S$853mn at 3Q21. There was a spike in inventory by S$154mn YoY to S$908mn. We believe there is buffer inventory to cope with the unpredictability in component supply.

The Negative

– Another weak quarter in revenue. Pre-pandemic, the quarterly run-rate in revenue was around S$900mn. This has dropped to S$700m this year. Venture has struggled to keep revenues to pre-pandemic levels these past two years despite the global resurgence in electronics demand. The pivot to life science and consequent long timeline to ramp up is a factor, in our opinion. We expect revenue to rebound in 4Q21e to S$916mn, an 11% YoY rise.

Outlook

Venture commented that new product introductions are expected to flow to mass production over the next 12 months.

Maintain NEUTRAL with unchanged TP of S$19.20

Our FY21e and FY22e PATMI is lowered by 10% and 11% respectively