We believe Venture Corp (VMS) will be able to benefit from the trend of accommodative policies being implemented by major central banks and governments to support economic growth. VMS highlighted that the business sentiment of most customers has generally been positive. Recent commentaries by some of its key customers on their outlook have largely affirmed this. However, there are still pockets of weaknesses, and VMS’s management had previously cautioned that it is too early to project a broad-based sustainable recovery. With bond yields remaining at low levels, we view VMS’s 6.7% FY14F dividend yield as an attractive investment proposition. Coupled with a forecasted cyclical earnings recovery, we deem it appropriate to upgrade VMS from Hold to BUY. Our fair value estimate is raised from S$7.78 to S$8.24 as we roll forward our valuations to 15x blended FY14/15F EPS.
Accommodative policies will bolster Venture’s recovery
We believe Venture Corp (VMS) will be able to benefit from the trend of accommodative policies being implemented by major central banks and governments to support economic growth. In the U.S., Federal Reserve Chairperson Janet Yellen has adopted a relatively dovish stance on interest rate hikes, while the ECB recently introduced a slew of measures such as cutting its deposit rate to -0.1% in a bid to fend off deflation. Closer to home, China has launched a mini stimulus package and lowered its reserve requirement ratio (effective 16 Jun) by 50 basis points to lend support to its 7.5% economic growth target. These measures have been undertaken because although recent macroeconomic data released have largely pointed to a recovery, it appears to be modest and still fraught with uncertainties and downside risks.
Outlook from major customers largely positive
VMS highlighted that the business sentiment of most customers has generally been positive. It expects improving contribution from customers secured in recent years and also the ramp-up of new programmes from a number of existing customers. Recent commentaries by some of VMS’s key customers on their outlook have largely affirmed this. However, there are still pockets of weaknesses, especially in emerging markets which are facing challenging conditions. VMS’s management had previously cautioned that it is too early to project a broad-based sustainable recovery. We believe the momentum of its growth is still highly dependent on end-market demand.
Upgrade to BUY
With the 10-year U.S. Treasury bond yield and 10-year Singapore government bond yield still remaining at low levels and economists also lowering their year-end target on where the former should be heading, we view VMS’s 6.7% FY14F dividend yield as an attractive investment proposition. Coupled with a forecasted cyclical earnings recovery growth of 8.7% in FY14 and 11.6% in FY15, which would mark its first positive PATMI growth since FY10, we deem it appropriate to upgrade VMS from Hold to BUY, with a higher fair value estimate of S$8.24 (previously S$7.78) as we roll forward our valuations to 15x blended FY14/15F EPS.
We believe Venture Corp (VMS) will be able to benefit from the trend of accommodative policies being implemented by major central banks and governments to support economic growth. In the U.S., Federal Reserve Chairperson Janet Yellen has adopted a relatively dovish stance on interest rate hikes, while the ECB recently introduced a slew of measures such as cutting its deposit rate to -0.1% in a bid to fend off deflation. Closer to home, China has launched a mini stimulus package and lowered its reserve requirement ratio (effective 16 Jun) by 50 basis points to lend support to its 7.5% economic growth target. These measures have been undertaken because although recent macroeconomic data released have largely pointed to a recovery, it appears to be modest and still fraught with uncertainties and downside risks.
Outlook from major customers largely positive
VMS highlighted that the business sentiment of most customers has generally been positive. It expects improving contribution from customers secured in recent years and also the ramp-up of new programmes from a number of existing customers. Recent commentaries by some of VMS’s key customers on their outlook have largely affirmed this. However, there are still pockets of weaknesses, especially in emerging markets which are facing challenging conditions. VMS’s management had previously cautioned that it is too early to project a broad-based sustainable recovery. We believe the momentum of its growth is still highly dependent on end-market demand.
Upgrade to BUY
With the 10-year U.S. Treasury bond yield and 10-year Singapore government bond yield still remaining at low levels and economists also lowering their year-end target on where the former should be heading, we view VMS’s 6.7% FY14F dividend yield as an attractive investment proposition. Coupled with a forecasted cyclical earnings recovery growth of 8.7% in FY14 and 11.6% in FY15, which would mark its first positive PATMI growth since FY10, we deem it appropriate to upgrade VMS from Hold to BUY, with a higher fair value estimate of S$8.24 (previously S$7.78) as we roll forward our valuations to 15x blended FY14/15F EPS.
No comments:
Post a Comment