Venture Corporation

Kim Eng on 24 Sept 2012

Don’t fret over the lack of growth yet. We forecast only 1% growth in 2012 due to tough economic conditions. However, Venture is actively preparing for growth that should come through in 2013 (+13% forecasted earnings). By focusing only on high-quality customers, we believe its target of achieving double digit growth with industry-leading margins, is achievable in the next three years. Until then, the attractive yield of almost 7% will support the stock’s appeal to the right investor.

Putting itself into the right light. To pump up the growth part of the equation, Venture is aggressively penetrating some promising accounts. The transfer of manufacturing from Shenzhen to Malaysia for networking & communication (N&C) customer Oclaro is progressing for a sooner than expected rampup and could contribute up to 5% of revenue in FY13. We note that Oclaro’s growth story has also started to catch the eye of US investors. N&C accounts for 25% of revenue.

Pointing the way to higher sales. Retail Store Solutions (31% of revenue) is likely to be another bright spot for Venture in 2013. In fact, we think the recent bleak outlook given by electronic payment solutions provider Verifone (the acquirer of Hypercom) could actually accelerate its desire to work with Venture on cost cutting. Venture’s entry into Verifone came by way of the latter’s acquisition of Venture’s existing customer Hypercom in 2011.

Minimal savings from factory purchase. Venture is acquiring a factory in Singapore from Ascendas REIT for SGD38m or SGD196psf, which is below our valuation of SGD203psf. With SGD227m in net cash, the deal is affordable and should not affect its annual dividend. Venture intends to consolidate its Singapore operations in this factory, following which it should save about SGD1.1m in after-depreciation rental cost, boosting 2014 earnings slightly.

7% yield to provide support till growth reignites. Venture’s annual DPS of SGD0.55 currently provides almost 7% yield. While a twice-yearly dividend was not announced last year, management assures us they are not against the idea and this could be implemented next year. We continue to like Venture, first for the yield support and second for the growth potential that should start to rev up in 2013.