Venture Corporation - Margins Defended Despite Cost Pressures
- Venture Corp (SGX:V03)'s 1H22 revenue rose 25.4% y-o-y to S$1,796.1m with all business segments registering y-o-y growth. 2Q22 revenue grew 21.6% y-o-y to S$906.8m. 1H22 revenue was 8.5% above our expectation. 1H22 core net profit of S$174.3m was 7.7% above our forecast of S$161.8m.
- Pre-tax margin was 12.2% in 2Q22 vs 11.6% in 2Q21 and 11.5% in 1Q22. Aiding the better pre-tax margin in 1H22 was
- a 13.3% y-o-y decline in depreciation expenses (as some machinery were fully depreciated), and
- a 25.4% y-o-y decline in R&D expenses.
- Cost pressure was evident with gross material profit margin erosion to 25.1% in 1H22 vs 26.4% in 1H22 and the 26.4% y-o-y increase in other operating expenses. Net profit margin was lowered by a higher tax rate of 18.0% in 1H22 vs 13.2% in 1H21 (Venture Corp had earlier guided for a tax rate of 18.0%).
- Based on customer order patterns, Venture Corp expects demand to remain unabated in 2H22F. The group sees resilient demand across its diversified customer base, especially in the Life Science Genomics, Healthcare Wellness, Networking Communications, Test Measurement Instrumentation and Process Test equipment in the semiconductor technology domains.
- Challenges continue to stem from the global supply chain constraints (including component tightness though there has been an improvement in the situation), rising inflationary pressures and a tight labour situation.
- With the better 1H22 performance, our FY22-24F revenue forecasts for Venture Corp are raised by 3.9- 8.5%. We also raise our tax rate assumption to 18.0% (previously 14.0%). Hence, we lift our FY22-23F EPS forecasts by 0.01-0.50%. Our target price of S$23.32 is based on 17.3x FY23F P/E (0.5 standard deviation above its 20-year average of 15.1x).
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2022-08-05 2022-08-05
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2022-04-29 Venture Corp - Going Back To Pre-COVID-19 Levels
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