Still on track. Despite a slightly lower than expected profit, Venture is
still on-track for single digit growth this year. More importantly, its
SGD0.55/share dividend (which still yields a hghly attractice 7.1%!) is
intact and we continue to like Venture’s long term growth drivers.
Maintain BUY with TP of SGD9.65.
Muted 2Q12 already expected. In-line with guidance given post-1Q12 results, 2Q12 revenue rose 6.5% QoQ. However, net profit fell 5% QoQ on a higher mix of lower margin RSSI business and delays in certain product launches. This is slightly below expectations. 2H12 should see a sequential pick-up but given the poor economic environment, we would not hold out for any significant surge, hence we expect only a 2% rise in full year earnings, in-line with the guidance of single digit growth.
But cashflow strengthened. Free cashflow jumped 26% YoY and 93% QoQ to SGD44m, on better payable days and lower capex. Venture is working further to improve working capital by tightening inventory management. While we expect inventory to rise in 2H12 on the back of rising volumes from new customer Oclaro, we remain confident in its capacity to pay annual fixed DPS of SGD0.55, which is yielding a very attractive 7.1% currently.
New business and customer transfers to drive 2H12, more so in 2013. 2Q12 margins were dragged down by higher RSSI business. However, higher Networking & Communication (Oclaro business transfer) as well as Industrial/Life Sciences mix should fix the lower margins in 2H12. Customer forecasts also call for better volumes across the board in 2H12. In addition, Venture is also pursuing a market share gain with dual-source customers that it has already identified.
Focus on the dividends. Venture has never been a traditional contract manufacturer and should not be valued on earnings growth. Instead, it has a defensive business model that focuses on sustainable cashflow and high margins. In our view, yield-hungry investors should take a serious look, as its fixed SGD0.55 DPS offers an attractive yield of 7.1%, and it has a robust track record of maintaining at least a SGD0.50 DPS through thick and thin.
Muted 2Q12 already expected. In-line with guidance given post-1Q12 results, 2Q12 revenue rose 6.5% QoQ. However, net profit fell 5% QoQ on a higher mix of lower margin RSSI business and delays in certain product launches. This is slightly below expectations. 2H12 should see a sequential pick-up but given the poor economic environment, we would not hold out for any significant surge, hence we expect only a 2% rise in full year earnings, in-line with the guidance of single digit growth.
But cashflow strengthened. Free cashflow jumped 26% YoY and 93% QoQ to SGD44m, on better payable days and lower capex. Venture is working further to improve working capital by tightening inventory management. While we expect inventory to rise in 2H12 on the back of rising volumes from new customer Oclaro, we remain confident in its capacity to pay annual fixed DPS of SGD0.55, which is yielding a very attractive 7.1% currently.
New business and customer transfers to drive 2H12, more so in 2013. 2Q12 margins were dragged down by higher RSSI business. However, higher Networking & Communication (Oclaro business transfer) as well as Industrial/Life Sciences mix should fix the lower margins in 2H12. Customer forecasts also call for better volumes across the board in 2H12. In addition, Venture is also pursuing a market share gain with dual-source customers that it has already identified.
Focus on the dividends. Venture has never been a traditional contract manufacturer and should not be valued on earnings growth. Instead, it has a defensive business model that focuses on sustainable cashflow and high margins. In our view, yield-hungry investors should take a serious look, as its fixed SGD0.55 DPS offers an attractive yield of 7.1%, and it has a robust track record of maintaining at least a SGD0.50 DPS through thick and thin.
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