Venture Corp (VMS) reported 1Q14 revenue of S$591.0m (+11.4% YoY) and constituted 24.1% of our FY14 forecast. PATMI rose 9.8% YoY to S$30.8m, and was slightly below our expectations, forming 21.1% of our full-year forecast. Encouragingly, all of VMS’s product segments recorded a positive YoY revenue increase, but we believe this growth also came off the back of a low base in 1Q13. VMS highlighted that the business sentiment of most customers has generally been positive. However, there are still underperforming customers within each of its business segments and hence management cautioned that it is still too early to project a broad-based sustainable recovery. We trim our FY14 PATMI forecast slightly by 2.4% but opt to keep our FY15 projections intact. Consequently, our fair value estimate is lowered from S$7.98 to S$7.78 (15x FY14F EPS). Downgrade VMS to HOLD as upside potential appears limited at this juncture.
1Q14 earnings slightly below expectations
Venture Corp (VMS) reported 1Q14 revenue of S$591.0m, which translated into a YoY growth of 11.4% and constituted 24.1% of our FY14 forecast. PATMI rose 9.8% YoY to S$30.8m, and was slightly below our expectations, forming 21.1% of our full-year forecast. Encouragingly, all of VMS’s product segments recorded a positive YoY revenue increase, with the strongest growth and contribution coming from its Test & Measurement/Medical/Others segment (+24% YoY; 31% of 1Q14 revenue). Nevertheless, we believe this growth also came off the back of a low base in 1Q13.
More positive sentiment from customers
VMS highlighted that the business sentiment of most customers has generally been positive. However, there are still underperforming customers within each of its business segments and hence management cautioned that it is still too early to project a broad-based sustainable recovery. We believe management has opted to remain relatively cautious in its outlook statement given the following reasons: 1) still uncertain macroeconomic environment despite modest recovery in the developed markets, 2) normalisation of business activities for some customers after exceptional order intake in the past, and 3) uncertainty in orders caused by customers’ restructuring and M&A activities.
Downgrade to HOLD
We trim our FY14 PATMI forecast slightly by 2.4% but opt to keep our FY15 projections intact. Applying the same 15x PER peg to our FY14F EPS, we derive a lower fair value estimate of S$7.78 (previously S$7.98). VMS’s share price has outperformed the STI by 6.2 ppt since we last upgraded it to a ‘Buy’ on 14 Aug 2013. As upside potential appears limited at this juncture (estimated total returns of 8.0% including FY14F dividend yield of 6.5%), we downgrade VMS to HOLD. The stock trades ex-dividend on 5 May 2014.
Venture Corp (VMS) reported 1Q14 revenue of S$591.0m, which translated into a YoY growth of 11.4% and constituted 24.1% of our FY14 forecast. PATMI rose 9.8% YoY to S$30.8m, and was slightly below our expectations, forming 21.1% of our full-year forecast. Encouragingly, all of VMS’s product segments recorded a positive YoY revenue increase, with the strongest growth and contribution coming from its Test & Measurement/Medical/Others segment (+24% YoY; 31% of 1Q14 revenue). Nevertheless, we believe this growth also came off the back of a low base in 1Q13.
More positive sentiment from customers
VMS highlighted that the business sentiment of most customers has generally been positive. However, there are still underperforming customers within each of its business segments and hence management cautioned that it is still too early to project a broad-based sustainable recovery. We believe management has opted to remain relatively cautious in its outlook statement given the following reasons: 1) still uncertain macroeconomic environment despite modest recovery in the developed markets, 2) normalisation of business activities for some customers after exceptional order intake in the past, and 3) uncertainty in orders caused by customers’ restructuring and M&A activities.
Downgrade to HOLD
We trim our FY14 PATMI forecast slightly by 2.4% but opt to keep our FY15 projections intact. Applying the same 15x PER peg to our FY14F EPS, we derive a lower fair value estimate of S$7.78 (previously S$7.98). VMS’s share price has outperformed the STI by 6.2 ppt since we last upgraded it to a ‘Buy’ on 14 Aug 2013. As upside potential appears limited at this juncture (estimated total returns of 8.0% including FY14F dividend yield of 6.5%), we downgrade VMS to HOLD. The stock trades ex-dividend on 5 May 2014.
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