Venture Corporation Ltd: Recovery delayed, not derailed
- Weak 3Q24 despite a seasonally strong period, below expectations
- Stable net margins
- Strong cash positions
3Q24 weak, profit and revenue dip despite seasonal strength
Weak 3Q24 despite a seasonally strong period, below expectations. Venture reported a weak 3Q24 business update, with revenue and net profit declined both on a y/y and q/q basis despite a seasonally stronger 2H. 3Q24 net profit fell 4.3% y/y (-5.0% q/q) to SGD60.6mn on the back of a 2.3% y/y (-3.9% q/q) drop in revenue to SGD689.7mn. The weakness was largely due to soft demand in the life science, lifestyle consumer, and test &
measurement instrumentation tech domains. This was partly offset by higher revenue in the networking & communications and semiconductor-related equipment tech domains. 3Q24 revenue and net profit account for 23%/22% of our full year forecasts, below expectations.
Stable net margins. Net margin of 8.8% was comparable to the 8.9% in 2Q24 and 8.9% in FY23, a result of the group focusing on operational efficiency.
Strong cash positions. Venture continued to generate strong operating cash flow and improvement in its working capital position from FY23. Net cash position increased by 13% from December ‘23 to SGD1.19bn as of September ‘24.
Exposure to AI data centre offers significant potential for growth. The group is expanding its presence in the AI data centre technology space, providing newly designed network interface cards with high-speed connectivity to hyper-scalers. This area presents significant growth opportunities, driven by the increasing demand for AI-powered solutions and the high value of each card.
Near term headwinds for life sciences; long-term opportunities remain. The life sciences segment is relatively weak now, as this segment is more capex-dependent and customers are generally more cautious, particularly in research-related work, as high funding costs remain a concern. However, in the longer term, this segment remains positive, supported by factors such as ageing population and rising healthcare demand.
Poised to benefit from the accelerating adoption of China+1 strategies. Trump’s presidency could potentially escalate trade restrictions and tariffs between the US and China, accelerating the adoption of a China+1 strategy. With its manufacturing facilities primarily located in Malaysia (Penang and Johor), Venture is well-positioned to capitalise on this growing trend.
Earnings cut by 16%; maintain BUY with lower TP of SGD15.10. On the back of the weak set of results and more cautious outlook, we cut earnings by 16% for FY24F/FY25F. Given the near-term headwinds in life sciences and test & measurement instrumentation technology, we project a flat 4Q24 performance compared to 3Q24. While the data centre segment presents significant growth potential, the group is still in the early stages of ramping up production, and we anticipate a more substantial contribution from next year. Reflecting these adjustments, we have reduced our target price to SGD15.10 (previously SGD16.40).
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