Venture Corporation

Kim Eng on 3 Jul 2014

• Customer-related M&As are favouring Venture for a change. Maintain BUY, with SGD8.64 TP, based on 16x FY14E P/E.
• The latest two M&As will add heft to two smaller customers and see the entry of a strong backer for a top 20 customer.
• Lastly, Honeywell’s acquisition of Intermec may have positive rather than negative implications for Venture after all.

M&A winds now in Venture’s favour
Unlike in the past, the latest two customer M&As – involving two medical customers and a top 20 customer MICROS – could bring in some good. Also, a previously-announced M&A involving another top 20 customer, Intermec, may be more positive than expected for Venture. We raise our FY15E earnings forecast by 1% to account for Intermec. Maintain BUY with TP of SGD8.64 (16x FY14E P/E).
It’s different this time
Unlike M&As in the past which led to lower volumes for Venture, the current batch of M&As involves:

• A merger that will add heft to two small medical customers. The merger of two customers will create a much larger single customer, the biggest medical device company in the world,
• MICROS gets a strong backer in Oracle. Oracle’s entry will strengthen MICROS’s position without threatening its hardware POS business, for which Venture is a supplier, and 
• More honey for Intermec. Honeywell, which is not involved in the mobile printing category that Venture engages in with Intermec, wants to grow Intermec’s overall business.

Tracking to expectations
So far, customer volumes have tracked forecasts, setting Venture up well to deliver 12% EPS growth in FY14E. For 2Q14E, we expect revenue to rise 6% YoY/5% QoQ to SGD622m and net profits to rise 27% YoY/24% QoQ to SGD38m. 6MFY14E profits should account for 47% of our full-year forecast. Results will be announced on 8 Aug.