Venture Corporation: Trudging through softer conditions
- 1H23 net profit of $140m (-19.7% y-o-y) was below our estimate
- Balance sheet remains strong; maintained interim dividend of S$0.25/share
- Reduce FY23/FY24F earnings by 10.8%/6.2% given near-term uncertainties
- Maintain HOLD with lower TP of S$15.40
1H23 net profit of $140m (-19.7% y-o-y) was below our estimates, representing 42% of our full year forecast. Gross margin for 2Q was stable at c.25%. The fall in net profit was largely attributed to a contraction in net profit margins by 0.9 percentage points from 9.7% in 1H22 to 8.8% in 1H23. The decline in margins was largely due to higher operating costs as energy costs and wages remained high. We understand that the mid-single digit percentage decline in staff costs could not fully offset the rise in energy costs of more than 30%. The management mentioned that cost cutting measures are underway and is in the midst of right sizing its staff count. The effective tax rate is largely stable at 18.1% in 1H23 vs 18.0% in 1H22.
Balance sheet remains strong; maintains interim dividend of S$0.25/share. Cash position as at end June 2023 increased by 10% from the previous half to S$895.6m, with no bank borrowings. Inventory continues to trend lower q-o-q and y-o-y as the group proactively manages its inventories.
Outlook for 2H23 remains cloudy but there are bright spots as Venture leverages on trade diversification to strengthen its market share. With the bulk of its manufacturing facilities outside China, Venture is in a good position to ride on the trade diversification trend. We continue to like Venture for its design capabilities in transforming products.
Paving the way for longer term growth; NPIs (new product initiative) picking up steam. Despite the near-term weakness, the group is working towards capturing new opportunities and gaining market share in the longer term, by building new differentiating capabilities and leveraging on its pool of blue-chip customers. Thus far, there have been no significant delays in NPIs however we note that ramp rates may differ.
Maintain HOLD with lower TP of S$15.40 (vs S$16.40 previously). We roll over our TP to c.13.5x on FY24F earnings which is around -1.5 SD of the historical mean (vs 14x on FY23/FY24F earnings). We reduced our FY23/FY24F revenue and earnings estimates by 6.4%/6.4% and 10.8%/6.2% respectively given the near-term uncertainties. In the longer term, we continue to like Venture as we believe the group would be able to emerge stronger when the global economy recovers. We remain positive on Venture’s ability to monetise its unique offerings and differentiating capabilities.
FY Dec | 1H2022 | 2H2022 | 1H2023 | % chg yoy | % chg hoh |
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Revenue | 1,796 | 2,068 | 1,582 | (11.9) | (23.5) |
Cost of Goods Sold | (1,346) | (1,578) | (1,186) | (11.9) | (24.9) |
Gross Profit | 450 | 490 | 397 | (11.8) | (19.1) |
Other Oper. (Exp)/Inc | (237) | (263) | (225) | (5.1) | (14.5) |
Operating Profit | 210 | 230 | 159 | (24.1) | (30.8) |
Other Non Opg (Exp)/Inc | 3 | 6 | 12 | 295.6 | 105.4 |
Associates & JV Inc | 0 | 0 | 0 | - | - |
Net Interest (Exp)/Inc | 0 | 0 | 0 | - | - |
Exceptional Gain/(Loss) | 0 | 0 | 0 | - | - |
Pre-tax Profit | 213 | 236 | 171 | (19.5) | (27.4) |
Tax | (38) | (40) | (31) | (18.8) | (23.2) |
Minority Interest | 0 | 0 | 0 | (29.0) | 0.0 |
Net Profit | 174 | 195 | 140 | (19.7) | (28.3) |
Net profit bef Except. | 174 | 195 | 140 | (19.7) | (28.3) |
EBITDA | 231 | 255 | 187 | (19.0) | (26.5) |
Margins (%) |
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Gross Margins | 25.1 | 23.7 | 25.1 |
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Opg Profit Margins | 11.7 | 11.1 | 10.1 |
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Net Profit Margins | 9.7 | 9.4 | 8.8 |
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