Venture Corp (VMS) reported a decent set of 3Q14 results with a 1.7% YoY revenue growth to S$598.7m while PATMI improved 3.1% to S$36.1m. For 9M14, revenue and PATMI grew 4.9% and 7.9% YoY to S$1.8b and S$100.5m respectively, but they were slightly below our expectation as they formed 74.1% and 70.5% of our FY14 projections. Its 9M14 PBT margin grew 0.6 ppt to 6.3%, which we believe the growth to be largely attributable to growth in its Test & Measurement / Medical / Others segment. Management guided that current level of margins is sustainable at least for the next few quarters. While 4Q has historically been the peak quarter, taking into account VMS’ 3Q14 results and growth outlook, we reduce our FY14 and FY15 PATMI forecasts by 2.4% and 2.3%, respectively. Consequently, we lower our FV from S$8.24 to S$8.04. Maintain BUY, supported by an attractive FY14F dividend yield of 6.6%.
Revenue and PATMI registered YoY growth in 3Q14
Venture Corp (VMS) reported a decent set of 3Q14 results with a 1.7% YoY revenue growth to S$598.7m while PATMI improved 3.1% to S$36.1m. Revenue growth was mainly driven by its Test & Measurement / Medical / Others (TMMO) segment with a 25.9% YoY increase to S$192.3m but offset by its Computer Peripherals & Data Storage (CPDS) segment, which declined 35.1% to S$46.8m. For 9M14, revenue and PATMI grew 4.9% and 7.9% YoY to S$1.8b and S$100.5m respectively, but they were slightly below our expectation as they formed 74.1% and 70.5% of our FY14 projections. The lower than projected 9M14 PATMI was mainly due to higher income tax as some of VMS’ subsidiaries were no longer receiving tax incentives as they did in FY13. We think its CPDS segment will continue to face lower revenue for the next few quarters due to product rationalization process post consolidation/separation of VMS’ customers. One example would be the spinoff of Keysight from Agilent.
Sustainable margins as customer mix shifts positively
VMS’ 3Q14 profit before tax (PBT) margin improved 0.8 ppt YoY to 6.8% while net margin remain flat. For 9M14, despite a 130.2% YoY increase in income tax, its net margin increased by 0.1 ppt to 5.6%. More relevantly, its 9M14 PBT margin grew 0.6 ppt to 6.3%, which we believe to be largely attributable to growth in its TMMO segment. We think revenue will not see significant upswing but stable growth. On profitability side, management guided that current level of margins is sustainable at least for the next few quarters. This will be achieved through higher value services by continuing to engage in more design and developmental works on new products together with customers. We think this strategy is already paying off, as both PBT and net margins had been improving YoY from 1Q13 to 3Q14.
Lower FV; maintain BUY
While 4Q has historically been the peak quarter, taking into account VMS’ 3Q14 results and growth outlook, we reduce our FY14 and FY15 PATMI forecasts by 2.4% and 2.3%, respectively. Consequently, we lower our FV from S$8.24 to S$8.04. Maintain BUY, supported by an attractive FY14F dividend yield of 6.6%.
Venture Corp (VMS) reported a decent set of 3Q14 results with a 1.7% YoY revenue growth to S$598.7m while PATMI improved 3.1% to S$36.1m. Revenue growth was mainly driven by its Test & Measurement / Medical / Others (TMMO) segment with a 25.9% YoY increase to S$192.3m but offset by its Computer Peripherals & Data Storage (CPDS) segment, which declined 35.1% to S$46.8m. For 9M14, revenue and PATMI grew 4.9% and 7.9% YoY to S$1.8b and S$100.5m respectively, but they were slightly below our expectation as they formed 74.1% and 70.5% of our FY14 projections. The lower than projected 9M14 PATMI was mainly due to higher income tax as some of VMS’ subsidiaries were no longer receiving tax incentives as they did in FY13. We think its CPDS segment will continue to face lower revenue for the next few quarters due to product rationalization process post consolidation/separation of VMS’ customers. One example would be the spinoff of Keysight from Agilent.
Sustainable margins as customer mix shifts positively
VMS’ 3Q14 profit before tax (PBT) margin improved 0.8 ppt YoY to 6.8% while net margin remain flat. For 9M14, despite a 130.2% YoY increase in income tax, its net margin increased by 0.1 ppt to 5.6%. More relevantly, its 9M14 PBT margin grew 0.6 ppt to 6.3%, which we believe to be largely attributable to growth in its TMMO segment. We think revenue will not see significant upswing but stable growth. On profitability side, management guided that current level of margins is sustainable at least for the next few quarters. This will be achieved through higher value services by continuing to engage in more design and developmental works on new products together with customers. We think this strategy is already paying off, as both PBT and net margins had been improving YoY from 1Q13 to 3Q14.
Lower FV; maintain BUY
While 4Q has historically been the peak quarter, taking into account VMS’ 3Q14 results and growth outlook, we reduce our FY14 and FY15 PATMI forecasts by 2.4% and 2.3%, respectively. Consequently, we lower our FV from S$8.24 to S$8.04. Maintain BUY, supported by an attractive FY14F dividend yield of 6.6%.
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