Venture Corp

Kim Eng on 27 Feb 2012


Within expectations, reduce to Hold. Venture reported a 9.1% YoY decline in FY11 revenue to $2,432.4m, while net profit fell by 16.8% YoY to $156.5m. The results were in line with our forecasts and dividends were maintained at an expected 55 cents per share, implying a 7.0% yield. We maintain our target price of $8.45 but reduce our rating to Hold following the 27% run-up in share price YTD.


Dragged down by depreciating US$ and lower margins. The dip in overall revenue was attributed to translation effects of the US$ decline against the S$. Neglecting this effect, revenue would have fallen by a lower 1.0%. Other than the Test & Measurement and the Retail Store Solutions segments, each of the other three segments registered a YoY drop in revenue. Net margin came in lower at 6.4% compared to 7.0% a year ago, but this was still within the company’s targeted margin band of 6-8%. We also note that net margins have trended lower sequentially over the past four quarters.


Still resilient but no significant near-term catalysts. Venture’s business remains relatively resilient despite the challenges in FY11. While uncertainties continue into this year, the company is in the midst of launching several new products and aims to garner additional business from across other divisions of its customers. These could be the few bright spots to watch out for in 2012. Otherwise, we do not see any other significant near-term catalysts and would expect modest growth in FY12.


Firm financial footing. Venture continues to generate strong operating cash flows and maintains a solid balance sheet. Free cash flow for FY11 was $220.3m and net cash position at end-FY11 was $309.1m.
Reduce to Hold. We adjust our FY12F-13F net profit forecasts by 1.2-7.7%. Our target price is maintained at $8.45 based on a targeted yield of 6.5%. We downgrade the stock to a Hold as share price has risen by 27% YTD and is nearing our target price. Attractive dividends also warrant a Hold to wait out for positive signs for re-rating.