IDC reported that enterprise wireless local area network (WLAN) market grew 7.7% YoY in 2Q14 while worldwide Ethernet switch (ES) market increased 6.2%, led by 21% growth in Asia Pacific ex Japan and 13.9% growth in Western Europe. We believe the growth in cloud deployments and worldwide network demand from datacentres will continue to drive investments in these two markets into FY15. Although Eurozone’s Manufacturing PMI of 50.7 (Jul-14: 51.8) is at its 13-month low in Aug-14, U.S. manufacturing PMI increased 1.9 ppt in Jul-14 to 59.0% while Markit’s Aug-14 Asia Sector PMI showed increased business activity. We think the positive signs showing in U.S. and Asia are likely to sustain for 2H14. Hence, we expect VMS to benefit alongside with its customers who are based in U.S. and Asia and we continue to retain our forecast. Given the recent decline in share price, we upgrade VMS to BUY on valuation grounds, with an unchanged fair value of S$8.24 (15x blended FY14/15F EPS), supported by an attractive FY14F dividend yield of 6.3%.
Expects growth in Networking & Communications segment
Semiconductor Industry Association (SIA) reported last week that sales in Jul-14 grew 14.9%, 11.2% and 8.1% YoY in Europe, Asia Pacific and Americas, respectively. According to IDC, enterprise wireless local area network (WLAN) market grew 7.7% YoY in 2Q14 while worldwide Ethernet switch (ES) market increased 6.2%, led by growth of 21% in Asia Pacific ex Japan and 13.9% in Western Europe. Correspondingly, Venture Corp (VMS) reported 6.5% YoY growth in its 2Q14 Networking & Communications (N&C) segment revenue to S$100.2m. We believe the growth in cloud deployments and worldwide network demand from datacentres will continue to drive investments in these two markets into FY15. With VMS’ N&C segment making up ~16.7% and ~16.3% of its 2QFY14 and 1HFY14’s total revenue, respectively, we think VMS is poised to capture the growth expected in this segment.
Generally positive outlook likely to sustain
Markit reported Eurozone’s Manufacturing PMI of 50.7 (Jul-14: 51.8) is at its 13-month low in Aug-14, as companies faced slower increases in both total new orders and new export business. According to Institute for Supply Management (ISM), U.S. Aug-14 PMI increased 1.9 ppt in Jul-14 to 59.0%, which is the highest since recording 59.1% in Mar-11, indicating continued expansion in manufacturing. Markit’s Aug-14 Asia Sector PMI also showed increased business activity, led by technological equipment producers, who saw the strongest output expansion in seven months. Based on our estimates as at its 2QFY14 results, with ~50%, ~10% and ~40% of VMS’ customers to be based in U.S., Europe and Asia Pacific, respectively, we believe the positive data points in U.S. and Asia would offset Eurozone’s decline and benefit VMS. We expect the positive outlook to sustain for the remaining 2H14.
Upgrade to BUY based on valuations
Hence, we expect VMS to benefit alongside with its customers who are based in U.S. and Asia and we continue to retain our forecast. Given the recent decline in share price, we upgrade VMS to BUY on valuation grounds, with an unchanged fair value of S$8.24 (15x blended FY14/15F EPS), supported by an attractive FY14F dividend yield of 6.3%.
Semiconductor Industry Association (SIA) reported last week that sales in Jul-14 grew 14.9%, 11.2% and 8.1% YoY in Europe, Asia Pacific and Americas, respectively. According to IDC, enterprise wireless local area network (WLAN) market grew 7.7% YoY in 2Q14 while worldwide Ethernet switch (ES) market increased 6.2%, led by growth of 21% in Asia Pacific ex Japan and 13.9% in Western Europe. Correspondingly, Venture Corp (VMS) reported 6.5% YoY growth in its 2Q14 Networking & Communications (N&C) segment revenue to S$100.2m. We believe the growth in cloud deployments and worldwide network demand from datacentres will continue to drive investments in these two markets into FY15. With VMS’ N&C segment making up ~16.7% and ~16.3% of its 2QFY14 and 1HFY14’s total revenue, respectively, we think VMS is poised to capture the growth expected in this segment.
Generally positive outlook likely to sustain
Markit reported Eurozone’s Manufacturing PMI of 50.7 (Jul-14: 51.8) is at its 13-month low in Aug-14, as companies faced slower increases in both total new orders and new export business. According to Institute for Supply Management (ISM), U.S. Aug-14 PMI increased 1.9 ppt in Jul-14 to 59.0%, which is the highest since recording 59.1% in Mar-11, indicating continued expansion in manufacturing. Markit’s Aug-14 Asia Sector PMI also showed increased business activity, led by technological equipment producers, who saw the strongest output expansion in seven months. Based on our estimates as at its 2QFY14 results, with ~50%, ~10% and ~40% of VMS’ customers to be based in U.S., Europe and Asia Pacific, respectively, we believe the positive data points in U.S. and Asia would offset Eurozone’s decline and benefit VMS. We expect the positive outlook to sustain for the remaining 2H14.
Upgrade to BUY based on valuations
Hence, we expect VMS to benefit alongside with its customers who are based in U.S. and Asia and we continue to retain our forecast. Given the recent decline in share price, we upgrade VMS to BUY on valuation grounds, with an unchanged fair value of S$8.24 (15x blended FY14/15F EPS), supported by an attractive FY14F dividend yield of 6.3%.
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