Venture Corporation Limited – Outlook starting to dim February 27, 2023 822

PSR Recommendation: ACCUMULATE Status: Downgraded
Last Close Price: 15.01 Target Price: 19.70
  • FY22 results were within expectations. Revenue and PATMI were 102%/97% of our FY22e forecast. 4Q22 PAT rose 3.4% YoY. Gross margin was the weakest in seven years.
  • There was caution in the company’s outlook. The environment in the short term is uncertain. Healthcare, life science and semiconductor sectors are the medium-term opportunities with their long product cycles.
  • We lower our FY23e PATMI by 9% to S$359mn and downgrade our recommendation from BUY to ACCUMULATE. Our target price is lowered to S$19.70 (prev. S$20.80), 16x PE FY23e. The macro backdrop for electronic exports has declined significantly and the global economy slowing.

 

 

The Positive

+ Healthy growth in revenue. 4Q22 revenue grew 15% YoY to S$1.04bn, the 2nd highest December quarter since 2017. Growth was from the life science, medical device and healthcare domain. Pre-pandemic, revenue growth was a negative 4% from FY17 to FY19. We also expect revenue growth to slow in 2023 with the absence of the Malaysia re-opening lift experienced in 2022.

 

 

The Negative

– Major decline in margins. 2H22 gross margins declined 2.1% points to 23.7%, the lowest levels since 2015. We believe Venture had to absorb the higher-priced raw materials which were bulked up over the past few quarters. Venture still maintains a high S$1bn of inventories. There was operating leverage at the operating cost level due to the appreciating US dollar.

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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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