We expect Venture Corp’s (VMS) FY12 earnings momentum to gain traction progressively after the seasonally weak first quarter. This is supported by the more optimistic industry data, new product launches and expected stronger contribution from several key customers. Looking ahead, we are positive on VMS’s strategic focus to move up the technological value chain as this would allow room for margin expansion and enhance its ‘stickiness’ with its customers. We finetune our assumptions following a change of analyst coverage, and raise our fair value estimate from S$7.83 to S$9.41 as we ascribe a higher valuation peg of 15x (previously 12.5x) to VMS’s FY12F EPS. This is supported by improving prospects of the group, coupled with growing market risk appetite. Upgrade to BUY.
Industry conditions may have bottomed out
Recent industry data have provided optimism that conditions in the technology and manufacturing sector may have bottomed out. Singapore’s electronics exports increased at an encouraging 3.9% YoY for the combined months of Jan and Feb this year. The electronics PMI also expanded for a second consecutive month in Feb, registering a reading of 51. Similarly, China’s manufacturing PMI grew to 53.1 in Mar, exceeding market expectations and registering its highest reading since Mar 2011. Nevertheless, we believe that downside risks still exist in the global economy.
Expect earnings momentum to gain traction progressively
While Venture Corp (VMS) acknowledges the ongoing macroeconomic uncertainties, it sounded more upbeat about its prospects for FY12 during our recent management meeting. This is underpinned by new product launches and better traction from several key customers. We expect its earnings momentum to pick up progressively after the seasonally weak first quarter. Hence FY12 is likely to be a back-end loaded year for VMS. The group’s healthy balance sheet (net cash of S$309.1m as at 31 Dec 2011) would also increase its resilience to weather the volatile business environment.
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Looking ahead, we believe that VMS is well-positioned to acquire new customers and gain market share from competitors as it continues its strategic focus on moving up the technological value chain. This entails the provision of products, services and solutions with higher design and engineering capabilities, thus allowing room for margin expansion and enhancing its ‘stickiness’ with its customers. We finetune our assumptions following a change of analyst coverage, and ascribe a higher valuation peg of 15x (previously 12.5x) to VMS’s FY12F EPS, representing a slight premium to its 5-year average forward PER. This is supported by improving prospects of the group, coupled with growing market risk appetite. Our fair value estimate increases from S$7.83 to S$9.41. Dividend yield is also attractive at 6.4%. Upgrade to BUY.
Recent industry data have provided optimism that conditions in the technology and manufacturing sector may have bottomed out. Singapore’s electronics exports increased at an encouraging 3.9% YoY for the combined months of Jan and Feb this year. The electronics PMI also expanded for a second consecutive month in Feb, registering a reading of 51. Similarly, China’s manufacturing PMI grew to 53.1 in Mar, exceeding market expectations and registering its highest reading since Mar 2011. Nevertheless, we believe that downside risks still exist in the global economy.
Expect earnings momentum to gain traction progressively
While Venture Corp (VMS) acknowledges the ongoing macroeconomic uncertainties, it sounded more upbeat about its prospects for FY12 during our recent management meeting. This is underpinned by new product launches and better traction from several key customers. We expect its earnings momentum to pick up progressively after the seasonally weak first quarter. Hence FY12 is likely to be a back-end loaded year for VMS. The group’s healthy balance sheet (net cash of S$309.1m as at 31 Dec 2011) would also increase its resilience to weather the volatile business environment.
Upgrade to BUY
Looking ahead, we believe that VMS is well-positioned to acquire new customers and gain market share from competitors as it continues its strategic focus on moving up the technological value chain. This entails the provision of products, services and solutions with higher design and engineering capabilities, thus allowing room for margin expansion and enhancing its ‘stickiness’ with its customers. We finetune our assumptions following a change of analyst coverage, and ascribe a higher valuation peg of 15x (previously 12.5x) to VMS’s FY12F EPS, representing a slight premium to its 5-year average forward PER. This is supported by improving prospects of the group, coupled with growing market risk appetite. Our fair value estimate increases from S$7.83 to S$9.41. Dividend yield is also attractive at 6.4%. Upgrade to BUY.
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