Venture Corp

OCBC on 4 May 2012

Venture Corp (VMS) reported a 13.7% YoY decline in its 1Q12 PATMI to S$35.5m on the back of a 2.3% drop in revenue to S$574.3m. This was within our expectations, although topline and bottomline formed only 22.3% and 20.6% of our full-year forecasts, respectively. We expect progressive improvement in VMS’s business momentum, with FY12 likely to be a back-end loaded year. Management guided that sentiment from its customers remains encouraging, with an anticipated pickup in orders, especially in 2H12. We maintain our projections, BUY rating and S$9.41 fair value estimate. Key risks to our estimates include a sharp deterioration in the macro economy and depreciation of the USD versus the SGD.

1Q12 results within expectations
Venture Corp (VMS) reported a 13.7% YoY decline in its 1Q12 PATMI to S$35.5m on the back of a 2.3% drop in revenue to S$574.3m. This formed 22.3% and 20.6% of our full-year forecasts, respectively. Results were within our expectations, as we are expecting progressive improvement in VMS’s operations, with FY12 likely to be a back-end loaded year. Sequentially, revenue fell 9.2%, while PATMI slid 6.6%, due mainly to seasonal factors. Net margin declined from 7.0% in 1Q11 to 6.2% in 1Q12, but showed a 0.2ppt gain from 4Q11, staying within VMS’s target margin band of 6-8%.

Momentum to pick up, optimism skewed towards 2H
Despite the slow start to the year, VMS remains fairly optimistic about its outlook for FY12, although there is still some level of uncertainty for 2Q. We expect conditions in 2Q to stay relatively sluggish, but foresee sequential improvement from 1Q. Sentiment from its customers remain encouraging, with contribution from new product launches and customers coming on stream more strongly in 2H12.

Strong growth potential in medical and life sciences field
In particular, management sounded particularly upbeat about its Medical and Life Science business. VMS has gained traction in this field over the past 2-3 years, and sees good scalability moving forward. In addition, management opined that outsourcing for this segment is currently only in the early stage. Given that VMS has already established a first mover advantage by developing a solid customer base in this area, we believe that there is strong potential for robust growth ahead as the outsourcing trend picks up.

Maintain BUY
Besides its Medical and Life Science operations, VMS is also positive on its Test and Measurement, Retail Store Solutions & Industrials and Networking divisions. We maintain our projections, BUY rating and S$9.41 fair value estimate. Key risks to our estimates include a sharp deterioration in the macro economy and depreciation of the USD versus the SGD.