Venture Corporation - DBS Research 2022-08-08: Strong Momentum To Continue In 2H22

Venture Corporation - Strong Momentum To Continue In 2H22

  • Despite the ongoing global supply chain challenges and periodic lockdowns in China in 2Q22, Venture Corporation (SGX:V03)
    reported 1H22 revenue of S$1,796.1m, up 25.4% y-o-y. The group saw broad-based expansion in all technology domains. In particular, Healthcare & Wellness, Life Science & Genomics and Test & Measurement Instrumentation technology domains registered strong performance.
  • An interim dividend of S$0.25 was declared, similar to 1H21.
  • Venture's 1H22 profit before tax (PBT) grew 31.6% y-o-y to S$212.8m, translating to a healthy PBT margin of 11.8% in 1H22, vs 11.3% in 1H21. This was achieved on the back of the group’s differentiating R&D capabilities and continued productivity gains despite rising inflationary pressures.
  • Net profit grew 24.1% y-o-y to S$174.3m, translating to a healthy net profit margin of 9.7% despite a higher effective tax rate. Tax rate remains high, at 18% for 2Q22, same as 1Q22 but much higher than 13.1% for FY21. The higher tax rate was mainly from the Singapore operations. For 2Q22, net profit came in at S$90.3m (+20.2% y-o-y; +7.5% q-o-q), with net margin of 10.0%, an improvement from 9.5% in 1Q22.
  • Overall, Venture's 2Q22 and 1H22 net profit account for 26% and 50% of our full year forecasts respectively, above expectations, as 1H typically accounts for about 45% of the full year number.
  • Inventories for 1H22 gained 19% y-o-y to S$1,250.4m, mainly to support its customer order fulfilment in response to the ongoing material constraints in key components. As a result, Venture's net cash as at end June 2022 eased 13% to S$704.3m from S$807.9m as at end December 2021. Venture is working towards normalising the inventory level going forward.
  • Based on customer/business partnerships’ order patterns, Venture expects demand to remain unabated in 2H22. 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.
  • Despite the global supply chain constraints, rising inflationary pressures and a tight labour situation, Venture has proven that it is still able to fulfill the bulk of the customers’ orders. We continue to expect Venture to manage well on the supply front, with operational excellence and increased focus on inventory management.
  • With strong demand and a manageable supply situation, we can expect Venture to end the year well, barring any adverse developments on the macro front. We have revised up FY22F and FY23F earnings forecast for Venture by 5% each. We have also raised margins to 9.8% from 9.5%/9.6% for FY22F/23F as Venture continues to focus on the higher value-add products. The scaling up of production for its new products should also help to boost margins. However, tax rate is expected to remain high, hence we have raised our tax rate assumption to 18% for FY22F/23F, from 17% previously.
  • On a longer-term basis, plans are in place for longer term growth. Venture’s new manufacturing site in Bata Kawan, Penang, which is so far one of the largest on a site area of 123,706 sqm, should be ready in the next one to two years.
  • Our target price of S$23.20 for Venture (previously S$22.70) is still pegged to ~19x P/E, the peak in 2020, which is also near +2 standard deviation of its 4-year average forward P/E, on FY22F earnings. Venture remains one of our top buys in the downstream space.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Lee Keng LING DBS Group Research | 2022-08-08
SGX Stock Analyst Report BUY MAINTAIN BUY 23.20 UP 22.700

Previous report by DBS Research:
2021-05-03 Venture Corporation - Strong Orders Marred By Supply Disruptions

Target prices by 5 other brokers at Venture Corp Target Prices.
Listing of broker reports at Venture Corp Analyst Report.

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