Results Review, 27 February 2014
Venture Corp (VMS SP)
Neutral (Maintained)
Technology - Electronics Market Cap: USD1,598m
Target Price: Price:
SGD7.71 SGD7.36 Macro Risks
Dividends Stands Firm Despite Lukewarm Growth
Growth Value
Venture Corporation (VMS SP) Price Close
Relative to Straits Times Index (RHS)
8.9
106
8.7
103
8.5
100
8.3
97
8.1
94
7.9
91
7.7
88
7.5
85
7.3
82
7.1
79
6.9 3
76
0 0 . 1 0 0 In 4QFY13, Venture Corp (VMS) delivered a SGD38.0m PATAMI (+0.1% . 0 y-o-y) on the back of SGD622.8m revenue (+5.1% y-o-y), slightly ahead 0 of expectations. While the printing and imaging segment will remain 0 weak, other segments are likely to improve. The stock’s sustainable 6.8% dividend yield will support its price. Maintain NEUTRAL, with our SGD7.65 TP based on a 14.8x FY14 P/E (5-year average forward P/E).
3 2
2
Jan-14
Nov-13
Sep-13
Jul-13
Apr-13
1 Feb-13
Vol m
1
Source: Bloomberg
Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Shareholders (%) Aberdeen Asset Mgmt Sprucegrove Investment Ngit Liong Wong
1.95m/1.54m 12.1 4.8 7.08 - 8.75 90
26.0 8.0 7.0
Shariah compliant
1 . 1 0 . 1
FY13 results dampened by customers’ M&As. In FY13’s revenue by segment, computer peripherals grew the fastest, rising 12.2% y-o-y to SGD291.1m, with test and measurement/medical/others coming a close second at SGD641.6m (+10.5% y-o-y). Printing and imaging revenue fell the most – by 32.6% y-o-y to SGD271.7m, due to weakness from HP’s traditional printing. Networking and communications revenue dipped slightly to SGD394.5m (-4.0% y-o-y) due to the Hypercom and VeriFone merger, while retail store solutions dropped to SGD727.5m (-0.83% y-oy) due to normalisation of Toshiba’s acquisition of IBM’s retail store arm. Meanwhile, the life science segment made its maiden contribution of SGD3.1m as the group separated it out from the other segments. 1Q14 likely to remain weak. Going forward, the printing and imaging segment is expected to remain weak as Venture’s foray into mobile and 3D printing will take time to bear fruit. On the bright side, the results in the other segments are likely to be more positive as the group expects to gain momentum with several key strategic customers while growing its existing sources of revenue. Given that Singapore’s January NODX has fallen 3.3% y-o-y and electronics exports are down 17%, we believe that 1Q14 will remain relatively weak. Expecting lukewarm growth but firm dividend. While the FY13 business volume declined as a result of macro weakness, the group has managed to increase its overall market share and win new programmes from its existing customers. Going forward, we expect a single digit 9% growth in FY14. Given VMS’ strong operating cash flow, we believe that its current generous dividend of SGD0.50 per share will hold firm and support its share price.
Forecasts and Valuations
Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
2,432
2,388
2,330
2,401
2,494
Reported net profit (SGDm)
157
140
131
143
163
Recurring net profit (SGDm)
157
140
131
143
163
(17.1)
(10.8)
(6.1)
9.2
14.0
Recurring EPS (SGD)
0.57
0.51
0.48
0.52
0.59
DPS (SGD)
0.55
0.50
0.50
0.50
0.55
Edison Chen +65 6232 3892
Recurring P/E (x)
12.9
14.5
15.4
14.1
12.4
[email protected]
P/B (x)
1.08
1.12
1.11
1.11
1.10
P/CF (x)
8.0
15.2
18.9
11.8
10.9
Dividend Yield (%)
7.5
6.8
6.8
6.8
7.5
7.51
8.91
9.54
8.82
7.93
Total turnover (SGDm)
Recurring net profit growth (%)
Terence Wong CFA 65 6232 3896
[email protected]
EV/EBITDA (x) Return on average equity (%) Net debt to equity (%)
8.4
7.6
7.2
net cash
net cash
net cash
Our vs consensus EPS (%)
7.9 net cash (5.8)
8.9 net cash 7.3
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
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1
Venture Corp (VMS SP) 27 February 2014
Financial Exhibits Profit & Loss (SGDm)
Dec-11
Dec-12
Dec-13
Dec-14F
Total turnover
2,432
2,388
2,330
2,401
Dec-15F 2,494
Cost of sales
(1,857)
(1,858)
(1,793)
(1,847)
(1,916)
Gross profit
575
530
537
554
Gen & admin expenses
(77)
(69)
(70)
(75)
(76)
(249)
(243)
(247)
(245)
(247)
Selling expenses
578
Other operating costs
(97)
(85)
(88)
(88)
(88)
Operating profit
152
133
131
146
167
Operating EBITDA
208
183
177
193
214
Depreciation of fixed assets
(57)
(50)
(46)
(47)
(48)
Operating EBIT
152
133
131
146
167
Net income from investments
2
6
4
1
1
Interest income
2
6
1
2
2
Interest expense
(2)
(2)
(1)
(2)
(2)
Exchange gains Pre-tax profit
4 158
Taxation
(0) 143
4 140
(1)
(4)
(9)
0
1
0
Profit after tax & minorities
157
140
Reported net profit
157
140
Recurring net profit
157
Minority interests
-
-
148
169
(5)
(5)
-
-
131
143
163
131
143
163
140
131
143
163
Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
152
133
131
146
167
Depreciation & amortisation
57
50
46
47
48
Change in working capital
38
(46)
(61)
(20)
(26)
Source: Company data, OSK-DMG estimates
Cash flow (SGDm) Operating profit
Other operating cash flow Operating cash flow
10
1
5
3
3
257
137
120
175
191
Interest received Interest paid Dividends received Tax paid
2
2
1
2
2
(2)
(2)
(1)
(2)
(2)
1
2
2
(6)
(7)
(15)
-
(5)
(5)
Cash flow from operations
252
133
107
171
186
Capex
(35)
(35)
-
-
(29)
(30)
(35)
Other new investments
(3)
(1)
(1)
Other investing cash flow
(3)
41
1
0
0
(35)
11
(34)
(35)
(35)
(151)
(151)
(137)
(151)
(151)
Cash flow from investing activities Dividends paid Shares repurchased
-
-
(2)
-
-
5
-
-
Proceeds from issue of shares
1
-
Increase in debt
1
(34)
(11)
-
(0)
(0)
(0)
-
(149)
(185)
(145)
(151)
(151)
442
513
453
391
377
68
(41)
(72)
(14)
4
(19)
10
453
391
Other financing cash flow Cash flow from financing activities Cash at beginning of period Total cash generated Forex effects Implied cash at end of period
513
-
1
-
-
377
377
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
2
Venture Corp (VMS SP) 27 February 2014
Financial Exhibits Balance Sheet (SGDm)
Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
Total cash and equivalents
513
453
391
377
377
Inventories
514
497
528
544
564
Accounts receivable
479
434
520
536
557
Other current assets
26
29
42
43
45
1,532
1,414
1,481
1,500
1,543
Total current assets Total investments
139
96
101
101
101
Tangible fixed assets
144
139
153
161
168
Intangible assets
736
718
701
680
660
4
5
7
7
7
Total non-current assets
1,023
959
961
949
936
Total assets
2,555
2,373
2,442
2,449
2,479
84
167
162
162
162
Accounts payable
332
289
335
345
358
Other current liabilities
132
103
106
109
112
Total current liabilities
547
559
603
616
632
Total long-term debt
120
-
-
-
-
Total other assets
Short-term debt
Other liabilities
18
14
10
10
Total non-current liabilities
137
14
10
10
10
Total liabilities
685
573
613
626
642
Share capital Retained earnings reserve Other reserves Shareholders' equity
10
673
673
678
678
678
1,410
1,399
1,394
1,386
1,399
(215)
(275)
(245) 1,827
(244) 1,821
(243)
1,868
1,797
1,834
Minority interests
3
2
2
2
2
Other equity
0
0
(0)
(0)
(0)
Total equity
1,871
1,800
1,829
1,823
1,837
Total liabilities & equity
2,555
2,373
2,442
2,449
2,479
Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
(9.1)
(1.8)
(2.4)
3.1
3.9
Operating profit growth (%)
(21.3)
(12.5)
(1.3)
11.3
14.3
Net profit growth (%)
(17.1)
(10.8)
(6.1)
9.2
14.0
EPS growth (%)
(17.2)
(10.8)
(6.2)
9.1
14.0
Bv per share growth (%)
0.6
(3.8)
1.4
(0.3)
0.7
Operating margin (%)
6.2
5.6
5.6
6.1
6.7
Net profit margin (%)
6.4
5.8
5.6
6.0
6.5
Return on average assets (%)
6.1
5.7
5.4
5.9
6.6
Return on average equity (%)
8.4
7.6
7.2
7.9
8.9
(16.5)
(15.9)
(12.5)
(11.8)
(11.7)
DPS
0.55
0.50
0.50
0.50
0.55
Recurrent cash flow per share
0.92
0.48
0.39
0.62
0.68
Source: Company data, OSK-DMG estimates
Key Ratios (SGD) Revenue growth (%)
Net debt to equity (%)
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
3
Venture Corp (VMS SP) 27 February 2014
SWOT Analysis Strong R&D team in the high-tech manufacturing space
Intensive competition in the electronics manufacturing services (EMS) industry
Diversified and reputable client base Proven management team Good financial health
Look for growth in the high-tech space such as communication and life sciences
Downward pricing pressure from customers Rising cost of production
P/E (x) vs EPS growth
P/BV (x) vs ROAE
18.0
30%
16.0
24%
14.0
19%
1.13
12.0%
1.12
10.3%
1.11
8.6%
3.4%
4.0
-9%
2.0
-14%
1.07
1.7%
0.0
-20%
1.06
0.0%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, OSK-DMG estimates
Jan-13
P/B (x) (lhs)
Jan-15
1.08
Jan-14
5.1%
-3%
Jan-12
1.09
6.0
Jan-11
6.9%
Jan-15
1.10
2%
Jan-14
8%
8.0
Jan-13
10.0
Jan-12
13%
Jan-11
12.0
Return on average equity (rhs)
Source: Company data, OSK-DMG estimates
Company Profile Venture is a high-tech electronics manufacturing services (EMS) provider with a diversified and reputable customer base that is tied to corporate spending.
See important disclosures at the end of this report
4
Venture Corp (VMS SP) 27 February 2014
Recommendation Chart Price Close 7.41
8.74
8.82
9.40
8.99
8.74
9.10
9.04
7.31
7.47
8.61
9.7
9.31
Recommendations & Target Price
NR
10.7
8.7 7.7
6.7 5.7 4.7 Buy 3.7 Feb-09
Neutral
Sell
Jun-10
Trading Buy
Sep-11
Take Prof it
Not Rated
Dec-12
Source: OSK-DMG estimates, Bloomberg Date
Recommendation
2014-01-28
Neutral
Target Price Price 7.41
7.42
2013-11-11
Buy
8.74
7.67
2013-05-02
Buy
8.82
7.55
2013-03-01
Buy
9.40
8.38
2012-11-09
Buy
8.99
7.74
2012-08-13
Buy
8.74
7.67
2012-05-04
Buy
9.10
7.66
2012-02-27
Buy
9.04
8.07
2011-11-10
Neutral
7.31
6.83
2011-08-05
Neutral
7.47
7.21
Source : OSK-DMG estimates, Bloomberg
See important disclosures at the end of this report
5
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