Is Venture Corporation worth S$22.70 a share?

• Venture Corporation Ltd (SGX: V03) shares are down 4.4% to S$19.45 since Friday (30 April 2021)
• This was despite the group reporting an 8.3% net profit growth in Q1 of 2021
• DBS analysts reiterated a ‘buy’ on the technology solutions provider’s stock this week, while lowering price target to S$22.70
• Venture expects a quarter-on-quarter improvement in Q2 of 2021
• Buy and sell Venture Corp shares with an IG account

Venture Corp share price: what’s the latest?

Venture Corporation shares have declined as much as 4.4% since announcing its Q1 2021 earnings on Friday (30 April 2021).

The technology solutions provider posted an 8.3% year-on-year growth in net profit for the first quarter of 2021 to S$65.3 million. Net profit margin also grew from 9% in Q1 2020 to 9.5% in Q1 of 2021.

The widening profit margin was ‘despite tepid growth in revenue due to global parts and components shortages’, the group shared in a Singapore Exchange filing. Revenue had increased 2% to S$686.7 million in Q1 2021.

DBS analysts maintained a ‘buy’ call on the stock on 05 May 2021, while lowering their price target to S$22.70 from S$24.30 previously. The price target is pegged to a 20.5x price-to-earnings (P/E) ratio on FY2021 earnings, at a +2SD (standard deviation) of its five-year average P/E ratio.

The researchers noted that Venture’s Q1 2021 performance ‘was affected by supply disruptions for parts and components’.

Nevertheless, they believe that the company’s product pipeline remains strong, with the group working towards the launch of new products across the Instrumentation, Networking & Communications, Advanced Industrials and Advanced Semiconductor-related Equipment domains.

The analysts are also confident that the company has strong financials to support a repeat dividend per share payout of S$0.75 in FY2021. This will work out to ‘an attractive yield of c.4%’, they said.

Risks, however, include weakening client or global growth prospects due to a global economic slowdown and dampened US dollar sentiments.

What are the company’s next steps?

Earnings per share for the quarter came in at S$0.224, up 7% from the S$0.208 posted in Q1 of 2020.

Looking ahead, the group expects a quarter-on-quarter improvement in Q2 2021, as well as stronger H1 2021 performance compared to the prior year.

‘Orders from Venture’s customers are showing broad-based strength across the Group’s diverse technology domains,’ it said.

Customer orders in the Life Science Technologies, Medtech Devices & Equipment, and Lifestyle & Wellness Consumer Technology domains are ‘also coming in strong’.

Although the group is seeing a strong pipeline of orders, ongoing supply disruptions for parts and components have also led to fulfilment issues. In response, the company says it has set up several working groups to manage its global supply base.

‘In addition to regular communications with our operations teams to strategise solutions, these groups also implement joint initiatives with various external stakeholders such as our customers and partners, suppliers and components manufacturers, to secure the parts and components to meet our shipment plans,’ Venture said.

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