Friday 14 March 2014

Venture Corp

OCBC on 13 Mar 2014

Venture Corp (VMS) managed to deliver continued sequential improvement in its quarterly results for FY13. We believe this reflects the recovery momentum of the global economy and consequently VMS’s operations, although FY13 revenue and PATMI still came in 2.4% and 6.1% lower than FY12, respectively. Given VMS’s strong balance sheet and our free cashflows/share forecast, we believe its FY13 S$0.50 DPS remains a sustainable baseline scenario. Looking ahead, although we continue to expect FY14 to be a recovery year for VMS, we conservatively trim our revenue forecast by 3.7% as there are still pockets of uncertainty in the global economy. Coupled with a higher effective tax rate assumption, our FY14 PATMI projection is lowered by 6.0%. Maintain BUY on VMS, albeit with a reduced fair value estimate of S$7.98 (previously S$8.50), pegged to 15x FY14F EPS.

Delivered continued sequential improvement in results
Venture Corp (VMS) managed to deliver continued sequential improvement in its quarterly revenue and PATMI for FY13. We believe this reflects the recovery momentum of the global economy and consequently VMS’s operations, although FY13 revenue and PATMI still came in 2.4% and 6.1% lower than FY12, respectively. The main drag came from its Printing and Imaging (P&I) segment, which registered a 32.6% slump in revenue. HP, one of VMS’s key P&I customers, recently highlighted that it is experiencing ASP pressures, although underlying unit demand is improving. VMS is placing more focus on the higher margin commercial high-end printing segment and has also diversified into label printing and 3D printing. 

Dividends to remain healthy
VMS’s FY13 declared dividend of S$0.50/share (yield of 6.7%) translates into a payout ratio of 105%, but we believe a DPS of S$0.50 remains a sustainable baseline given its strong balance sheet (net cash/share of S$0.83 as at end FY13). We forecast VMS to generate S$0.59 and S$0.52 of free cashflows/share in FY14 and FY15, respectively, which will help to support its healthy dividends trend.

Outlook brighter, but uncertainties remain
During 2013, VMS added four new customers, enlarging its portfolio to 187 customers. Looking ahead, management highlighted that the majority of its customers are showing some signs of recovery, although there are still some customers whose pace of recovery remains unclear. We believe visibility remains limited to the near-term, as there are still pockets of uncertainty in the global economy. For example, China’s official PMI data reading of 50.5 in Feb was its lowest in eight months.

Maintain BUY
Hence, although we continue to expect FY14 to be a recovery year for VMS, we conservatively trim our revenue forecast by 3.7%. Coupled with a higher effective tax rate assumption, our FY14 PATMI projection is lowered by 6.0%. Maintain BUY on VMS, albeit with a reduced fair value estimate of S$7.98 (previously S$8.50), pegged to 15x FY14F EPS.

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