Tuesday, 12 August 2014

Venture Corp

Kim Eng on 11 Aug 2014

  • 2Q14 slightly below due to higher tax and R&D costs. No concern, as better topline and margins were what we were looking for.
  • Growth drivers intact. 3D printers shaping up nicely. Could be more significant next year.
  • Maintain BUY. TP raised to SGD9.50 from SGD8.60, after rollover to 16x FY15E P/E based on peer average.
Higher tax, USD weakness
2Q14 net profit was slightly below due to USD weakness, higher other opex (R&D) and tax provisions. No cause for concern, as what we were interested in was better topline growth and margins. To this end, revenue grew 2% YoY to SGD601m. Net profit was up 12% YoY to SGD34m. Net margins improved to 5.6% from5.2% in 1Q14 and 5.1% in 2Q13. 1H14 net rose 11% YoY to SGD64m or 44% of our FY14E forecast.

All’s looking up again
Now assuming a higher 9.6% tax rate (7% previously), we shave our FY14E net profit to SGD145.9m from SGD147m. This still implies11% YoY growth, marking a turnaround from last year’s -6%. Our FY15E-16E earnings are intact. TP raised to SGD9.50 (from SGD8.60) as we roll over to 16x FY15E P/E. Life Sciences (LF) and Networking & Communication (NC) should power this year’s growth. New LF customers have launched products that are selling well. NC growth should be led by Oclaro’s shift from China to Malaysia. Management is hopeful that M&Asamong its customers will not jeopardise Venture’s positive momentum this time around. Orders from Intermec and Micros,among its top 20 customers, have so far not been affected. Venture is already engaging Honeywell, Intermec’s buyer. Lastly, its fledgling 3D printer business is gaining traction and may be a bigger growth driver next year. Venture is working on “several” models, up from just one not too long ago.

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