Venture Corp - Life sciences segment the next wave of growth‏

• Stable semiconductor industry outlook

• Life sciences segment up and coming

Upgrade to BUY on recent correction

Semiconductor industry forecasted to grow steadily
According to the World Semiconductor Trade Statistics (WSTS), the semiconductor market is forecasted to maintain steady growth of 3.4% in 2015 to US$347b, 3.4% in 2016 to US$359b and 3.0% in 2017 to US$370b. The growth in 2015 will be largely driven by smartphones and automotive with the Asia-Pacific (7.0%) and Americas (3.7%) regions in the front seats while Europe (-3.6%) and Japan (-9.5%) is forecasted to show decline given their weaker currencies against USD. Beyond that, all regions are expected to record positive growth rates in 2016 and 2017. In addition, technology market watcher, Gartner, released encouraging 1Q15 data on worldwide server revenue, which grew 17.9% YoY to US$13.4b on the back of a 13.0% growth in shipments to 2.7m units.

Medical/Life sciences segment to drive growth
As highlighted in our previous report, we maintain our view that Venture Corporation Ltd’s (VMS) next wave of growth is likely to come from its Test & Measurement, Medical & Life Science and Others, which makes up a significant ~32% of its total FY14 revenue. While we do not expect a significant jump in revenue ahead, we think the growth from particularly its Medical and Life science (ML) segment will be steady and meaningful. From our checks, one of VMS’ key ML customers is U.S. based Illumina, which VMS worked with to launch a relatively low-cost desktop DNA sequencer in 2014. Notably, Illumina posted a strong set of 1Q15 results, and stated in their press release guiding for ~20% total revenue growth for FY15, which we expect VMS to benefit from it. 

Furthermore, according to Gartner, healthcare providers’ spending on IT products and services are expected to grow 7.0% to US$1.2b in India and 0.8% to US$2.9b in Middle-East and North Africa. With a customer base more than just Illumina for its ML segment, we think VMS will benefit from these increased spending and through deeper collaboration with its customers.


Technical Analysis
Daily Chart
Upgrade to BUY on recent correction
We keep our forecasts unchanged as this trend is within our expectation. However, the recent correction presents buying opportunity with an attractive FY15F dividend yield of 6.5%. Hence, we upgrade to BUY on VMS, with the same FV of S$8.41. (Read Report)

Source : OCBC Investment Research

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