Venture Corporation

Kim Eng on 27 Feb 2014

Within expectations
Venture’s FY13 net profit fell 6% YoY to SGD131m against our forecast of SGD134m, with the variance entirely due to a higher tax provision. 4Q13 net profit rose 8% QoQ to SGD38m on a 6% QoQ/5% YoY increase in revenue to SGD623m. Two things were notable – quarterly revenue was the highest since 4Q10 and net margin of 6.1% was the highest since 2Q11. In our view, this is the start of a recovery for Venture. Lastly, the final dividend of SGD0.50 per share was never in doubt.

The turning point is here
We believe 4Q13 was a turning point for Venture’s transformation, marking its return to sustainable growth. There are still challenges but a full two-thirds of its customer base is seeing a recovery while Venture is gaining more traction with new customers and new products. For FY14E, management anticipates better growth in Test & Measurement, Life Sciences and Industrial Products, segments that also promise higher margins. Longer term, Venture is positioning itself at the forefront of new and exciting technologies, eg, 3D printing and genetic sequencing.

FY15/16 forecasts raised, maintain BUY
We see more meaningful contributions from 3D printing and Life Sciences by FY15E and lift our FY15E/16E earnings by 4%/5% to factor in a higher contribution from these new areas. We note that Life Sciences revenue was broken out as a separate category for the first time in 4Q13, suggesting that the segment could become very important within the next two years. We trim our FY14E forecast slightly by 0.6% to account for a higher tax rate.