Thursday 21 February 2013

Venture Corporation

OCBC on 20 Feb 2013

Venture Corporation (VMS) is slated to release its 4Q12 results on 28 Feb after trading hours. We are projecting revenue to remain flat YoY at S$34.9m and PATMI to decline 8.1% YoY to S$633.2m. This is approximately 4.5% and 14.8% below the Bloomberg consensus estimates, respectively, due to lower operating margin assumption. However, a key highlight would be expectations for a first and final dividend of 55 S cents/share, which translates into an attractive yield of 6.5%. Looking ahead, conditions for VMS are likely to pick up gradually after the seasonally slow 1Q13, with stronger financial performance expected in 2H13 when contribution from new product launches gain traction. Maintain BUY, with an unchanged fair value estimate of S$9.22.

Projecting flat revenue and 8% YoY fall in 4Q12 PATMI
Venture Corporation (VMS) is slated to release its 4Q12 results on 28 Feb after trading hours. We are forecasting revenue to remain flat YoY at S$34.9m and PATMI to decline 8.1% YoY to S$633.2m. This is approximately 4.5% and 14.8% below the Bloomberg consensus estimates, respectively, due to lower operating margin assumption. We expect 4Q12 to include the maiden contribution from VMS’s agreement with Oclaro Inc. to transfer the latter’s manufacturing operations from Shenzhen to VMS’s Malaysia facility. During Oclaro’s recent 2QFY13 results, its management said that the first product from this business transfer had been fully qualified and shipped to the customer. Although encouraging, contribution to VMS is likely to be immaterial initially, in our view, as it takes time for production to be ramped up. However, should this transition turn out to be better-than-expected, we believe that it would enhance VMS’s reputation as a strategic partner for global tech firms and could lead to similar business opportunities with new and existing customers.

Near-term conditions still challenging, but outlook improving
Although there are still ongoing vagaries in the macroeconomic environment, there has been a general sense of improved economic sentiment recently. For example, China’s 4Q12 GDP growth of 7.9% YoY suggests that her economy is on the mend. Conditions for VMS are likely to pick up gradually after the seasonally slow 1Q13, with stronger financial performance expected in 2H13 when contribution from new product launches gain traction.

Reiterate BUY ahead of anticipated 55 S cents DPS declaration
VMS’s share price has performed well since we highlighted it as our top pick in our tech sector strategy report on 21 Dec 2012, appreciating 7.5%. This is higher than the STI’s 4.2% gain during the same period. We forecast VMS to declare a first and final dividend of 55 S cents/share during its 4Q12 results announcement, similar to FY11. This translates into a yield of 6.5% and we expect this to lend support to VMS’s share price in the near term. Maintain BUY, with an unchanged fair value estimate of S$9.22.

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