Venture Corporation Ltd – Revenue close to record levels November 7, 2022 217

PSR Recommendation: BUY Status: Maintained
Last Close Price: 17.29 Target Price: 20.80
  • 9M22 PAT was within expectations at 71% of our FY22e forecast. 3Q22 PAT jumped 27% YoY to S$97.4mn. The improvement was in part due to lockdowns in Malaysia a year ago.
  • The company said that growth was across all sectors. We believe the strong US dollar was another tailwind to growth.
  • We lift our FY22e revenue by 4% but maintain earnings as we lower margin assumptions. Our BUY recommendation and target price is unchanged at S$20.80, based on 16x PE FY22e. Venture’s dividend yield and valuation are attractive. However, we are cautious for FY23e and lower our revenue growth rate to 3% (prev. 7%). Macro uncertainty may push customers to turn cautious on their forward orders.

 

Results at a glance

Source: Company, PSR #Note – Only selected financials are provided in the 3Q22 update.

 

The Positive

+ Broad based revenue growth. Revenue growth was broad-based across all verticals. The S$1bn revenue per quarter is back to FY17 levels and the 2nd highest for a September quarter.

 

The Negative

– Inventory is elevated; higher effective tax. Inventory is up S$345mn YoY to S$1.25bn. The jump is to cater to rising sales demand and buffer for any supply disruptions. Another drag to earnings was the higher effective tax of 18% in 3Q22 (3Q21: 12.6%) due to lower tax incentives.

 

Outlook

Venture is expanding capacity in Malaysia to cater to improving demand. The trend to outsource more production into SE Asia away from China is a multi-year tailwind for Venture. However, macro uncertainty could dampen customer orders in the near term.

 

Maintain BUY with a unchanged TP of S$20.80

Our FY22e revenue is increase by 4% but net margins lowered on declining gross margins and higher effective tax rate.

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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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