+ Stable gross margins and healthy net cash. Despite the weaker revenue, gross margins were stable at 25.1%. We believe the weaker ringgit, lower freight cost and reduced labour force were some of the drivers to stable margins. Net cash improved by S$191mn YoY to S$896mn. The cash hoard has turned interest income into an earnings growth driver. 1H23 interest income jumped 4-fold from S$3.1mn to S$12.5mn.
– Inventory is still too high. Inventory in 1H23 declined by S$248mn to S$1,002mn. With the lower revenue run-rate, inventory remains a concern with the possibility of write-offs, in our opinion. Annualised inventory days are currently around 137 days vs the pre-pandemic average of 100 days. This implies an excess of almost S$250mn of inventory compared to the historical average.
We expect weakness to persist into the third quarter. The foundation of future growth for Venture stem from new programmes and customers looking to de-risk their supply chain out of North Asia into SE Asia. Malaysia is an attractive location for the deepening scale of the supply chain, skill sets, available space, and low-cost production. Singapore complements engineering expertise and oversight.