Friday 12 October 2012

Venture Corp

OCBC on 12 Oct 2012

We expect Venture Corp (VMS) to report a muted set of results during the upcoming 3Q12 earnings season, given the continued weak sentiment amongst its key customers. We forecast flat to low single-digit revenue and PATMI growth for VMS on a QoQ basis in 3Q12. Nevertheless, we are more optimistic on its financial performance in 4Q12 and FY13. This is underpinned by the launch of new programmes with both existing and new customers. We retain our forecasts as we had already previously factored in the tepid industry conditions in our assumptions. Reiterate our BUY rating and S$8.72 fair value estimate. In our opinion, VMS’s attractive prospective dividend yield of 6.9% would provide support to its share price, while also providing an investment merit for investors looking for high-yielding assets given the current low interest rate environment.

Sentiment still muted, but within our expectations
We expect Venture Corp (VMS) to report a set of muted 3Q12 results due out on 8 Nov. This is attributed to continued weakness in sentiment amongst its key customers, based on our channel checks and update from the group. We believe that business confidence has been undermined by uncertainties in the macroeconomic environment, thus impacting the volume ramp up from VMS’s key customers. We forecast VMS to deliver flat to low single-digit revenue and PATMI growth on a QoQ basis for its 3Q12 results. General manufacturing data have also painted a dour scenario, which highlights the prevailing challenging conditions. 

Optimism for FY13
Nevertheless, we opine that VMS’s financial performance could pick up in 4Q12, with momentum flowing into FY13, underpinned by the launch of new programmes with both existing and new customers. New electronics products typically have an opening window of higher margins upon launch and we expect VMS to benefit positively on this, especially in FY13. One growth driver for VMS is likely to come from Oclaro Inc., which has signed an agreement to transfer its final assembly and test operations from Shenzhen to VMS’s Malaysia facility over the next three years. Qualification by customers is currently taking place. We believe that maiden contribution would occur in 4Q12, with more significant ramp up in production in FY13. 

Maintain BUY, supported by its healthy dividend yield
We retain our forecasts as we had already previously factored in the tepid industry conditions in our assumptions. Reiterate our BUY rating and S$8.72 fair value estimate, still based on 15x blended FY12/13F EPS. In our opinion, VMS’s attractive prospective dividend yield of 6.9% would provide support to its share price, while also providing an investment merit for investors looking for high-yielding assets given the current low interest rate environment.

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