Venture

Kim Eng on 4 May 2012

Results in-line, maintain BUY. We maintain our BUY call and retain our target price of SGD9.65 (based on average 5.7% yield of top 15 dividend stocks). Although 1Q12 profits were a bit shy of expectations, this is not enough for us to change our full year forecast. We retain our view that 2012 should be a better year for Venture, with sequential improvement expected every quarter. While we are forecasting only modest growth this year, we believe this could turn out to be a conservative forecast given the new opportunities opening up for Venture this year, to be followed up on a larger scale in 2013.

Earnings slightly below expectations. 1Q12 numbers came in a bit light of forecast, but not by much and not enough to derail our full year forecast. Revenue fell 2.3% YoY and 9.2% QoQ to SGD574.3m while net profit fell 13.7% YoY and 6.6% QoQ to SGD35.5m. However, we had already warned of the seasonal effect. In this regard, the QoQ drop of 8-11% for its various industry segments was better than 18-25% a year ago, reflecting a marked improvement in business sentiment.

Still racking up gains in cashflow & margins. More importantly however, Venture continued to make great strides in whipping cashflow and margins back into shape. Net cash jumped 20% YoY to SGD306m as cash collection cycle fell to 101 days on the back of improvements all around in inventory, receivables and payables. However, we believe there is still room for improvement. Venture also achieved a better net margin of 6.2% QoQ, within its target margin band of 6-8%.

Business to steadily improve in 2012. Management expects steady improvement throughout 2012, with 2Q12 to be sequentially better. If macro conditions remain stable, 2H12 should be stronger as well. Management commentary on customers’ outlook was encouraging, with test & measurement, medical and life sciences, networking, retail store solutions and industrial products expected to do better in 2H12. New customers such as Verifone should also start contributing by end-2012.