SHARES of electronics manufacturing services firm Venture Corp hit a 52-week intraday high of S$21.21 on Wednesday morning.

 

RHB has also upgraded the counter to " buy" with a higher target price of S$22.60, from S$20.60 previously.

 

Venture began Wednesday at S$20.85, up 1 per cent from the previous day' s close of S$20.65. It then gained a further 1.8 per cent in the first 40 minutes of trade to hit S$21.21 but retraced slightly to end the first half of the trading day at S$21.08. The counter ended the day at S$20.97, up 1.6 per cent or S$0.32.

 

In a report on Wednesday, RHB analyst Jarick Seet said Venture should " chart a steady recovery" in the second half of this year on a brighter outlook.

 

" The company is now fulfilling its backlog of orders, while its research and development laboratory plans to release some new products for the manufacturing segment in early-2021," he said.

 

DBS analyst Ling Lee Keng told The Business Times that demand for the company' s essential goods such as ventilators and networking and diagnostic equipment has surged by " multiple folds" amid the pandemic. And the outlook is likely to remain bright for the group as it continues to tap on these demands.

 

Said Ms Ling: " This strong demand trend, especially for the medical equipment segment, is expected to last beyond 2020 due to the pandemic that is expected to be prolonged.

 

" With the factories busy with order backlogs, a number of new product initiatives (NPIs) will be pushed back to early next year. This could provide further momentum in FY21."

 

Despite lower revenues, Mr Seet noted that Venture is " trying hard to maintain margins" by implementing further cost controls and improving production efficiency.

 

While average selling price pressures should align its rates to match end-market demand, Venture' s non-essential market segments may see some pressure, given their slower rate of recovery amid the Covid-19 pandemic, he added.

 

For now, the brokerage said Venture' s production is unlikely to rebound to pre-pandemic levels, given social-distancing measures and restrictions. However, the company' s growing diversification of customers is a strategy that is likely to pay off. Its top 10 customers now account for 45 to 55 per cent of revenue, down from 50 to 60 per cent previously.

 

In particular, Mr Seet said Venture could tap the increased orders from customers in industries such as life sciences, medical devices and equipment, networking and communications and semiconductors.

 

He added that the company has also gained " meaningful traction" with new customers on both year-on-year and quarter-on-quarter basis.

 

On the back of " more resilient margins and stability" compared to its peers, RHB has now pegged Venture to a higher FY21F price-to-earnings (P/E) ratio of 19 times from the previous 17 times.

 

Mr Seet said that in terms of rewarding shareholders, the company prefers to dole out " long-term stable and sustainable dividends" , citing its higher interim dividend of S$0.25 per share for H1 this fiscal year, compared to S$0.20 per share in the year-ago period.

 

Assuming Venture' s final dividend remains unchanged from last year, the group' s FY20F dividend will likely be raised to S$0.75 from S$0.70 in FY19, representing a 3.6 per cent yield.

 

" We think this is highly sustainable, and investors should continue enjoying higher dividends ahead, if the company' s performance continues to improve," said Mr Seet.

Profit falls to S$130.5 million, as some customers pushed back orders amid Covid-19 pandemic

 

MAINBOARD-LISTED Venture Corp posted a 28.2 per cent fall in net profit to S$130.5 million for the six months ended June, as some customers pushed back orders amid the Covid-19 pandemic.

 

Nevertheless, the electronics manufacturing services provider declared an interim dividend of S$0.25 per share, up from S$0.20 a year earlier. The dividend will be paid on Sept 18.

 

Revenue fell 25.5 per cent to S$1.37 billion, hit by supply chain disruptions and factory lockdowns in Malaysia, Spain, the United States and China, due to the Covid-19 pandemic. In addition, orders from some customers in non-essential, end-market segments were pushed back to later quarters.

 

But in tandem with the lower revenue, changes in finished goods, work in progress and raw materials costs also fell, cushioning the impact on the bottom line. The firm also recorded a S$3.1 million foreign currency exchange gain, up from S$1.22 million previously.

 

Overall, net operating cash flow for H1 strengthened to S$252.1 million from S$205.1 million. Venture was in a net cash position of S$833 million at end-June. Its working capital position improved on the back of a lower net receivables and payables position. This was offset by higher inventories to enable continuous support for customers' programmes.

 

" Notwithstanding revenue headwinds from this unprecedented situation, the group delivered strong sequential quarterly recovery underpinned by resiliency from a diversified customers' portfolio and nimble adaptability to business changes," Venture said of its performance.

 

For Q2, Venture' s net profit stood at S$70.2 million, down from the S$90.8 million bottom line a year ago. This came as revenue fell to S$692.7 million from S$903.5 million for the same period last year.

 

Net margins remained relatively robust at 10.1 per cent for Q2, unchanged from a year earlier and 9.6 per cent for H1, down by 0.3 percentage point year-on-year.

 

Looking ahead, Venture said that it continues to see sustained demand from customers in the life sciences, medical devices and equipment, networking and communications and semiconductor-related equipment domains. It is also fulfilling orders from non-essential domains as economies reopen.