• 1Q22 PAT rose 28% YoY to S$84mn and beat our estimates by 10%. It was the 2^nd highest Mar quarter for Venture. PAT was 23% of our FY22e forecast.
• Venture has coped well with supply chain challenges through a strong balance sheet to bulk up on inventories and re-design of products with new components.
• Outlook remains upbeat with customers committing to six to 12 months of visibility. We also believe new products especially life science are gaining more traction. Despite the earnings beat, we maintain our FY22e PATMI. We are incorporating a buffer as the slowing macro environment remains a concern. The target price of S$20.00 is unchanged and based on 16x PE FY22e, its 5-year average. Our recommendation is upgraded from ACCUMULATE to BUY. The current share price offers a 5% dividend yield with an attractive unlevered ROE of 13% and a net cash balance sheet of S$808mn.

Results at a glance

Source: Company, PSR #Note – Only selected financials are provided in the 1Q22 update.

The Positive

+ Revenue building up momentum. Revenue momentum has picked up since 4Q21. Revenue is recovering to pre-pandemic levels as factory closures and supply chain disruptions over the past two years start to ease.  Due to long lead times and shortages, Venture has managed to re-design products with alternative components.

The Negative

– Inventories spiked almost 70% YoY to S$1.1bn. To support customer orders, Venture needs to hold inventories of semiconductors, materials and other components. It is a near-term drag on working capital. Both receivables and inventory are up S$680mn YoY. The additional working capital required was $370mn to fund the $283mn increase in revenue over the past 12 months as payables jumped by S$305mn. Net cash dropped to S$815mn from S$989mn a year ago.

Outlook

We expect FY22e to be a recovery year for Venture as: (i) There is order visibility as customers make longer-term commitments to ensure supply; (ii) Growth is broad-based across six of their seven key industries; (iii) Rebound from last year’s factory shutdown in Malaysia; and (iv) New products gaining more traction with customers, namely in life science and lifestyle and wellness.

Upgrade to BUY from ACCUMULATE with an unchanged TP of S$20.00

Our FY22e revenue and earnings forecast are unchanged.