Venture Corporation - 3Q15 largely in line; shift towards higher value-added products helps margins


Venture's 3Q15 net profit of S$40.5 mn (12.4% QoQ, 12.2% YoY; 9M 69% of our FY15E) was largely in line with estimates, driven by gradual improvement in both top line and margins.

Top line growth (15.7% YoY) saw a broad-based improvement. Venture continues to gain market share through existing customers and acquired new ones, and remains a beneficiary of the strong USD (helps both top line and margins).

Taxes continue to increase due to change in sales mix and the expiration of tax subsidies, dragging down bottom line. Management remains focussed on increasing the mix towards higher value-added products, which could drive margins and longer-term shareholder value.

The top line and margin improvement continues to remain largely in line with expectations. Venture is a key beneficiary of a stronger USD going forward. While valuations are supported by a 6% dividend yield, valuation re-rating would require a meaningful pickup in earnings momentum. Maintain NEUTRAL.

Top line improvement across all segments;
Venture continues to make headway in gaining market share and acquired new customer accounts.

Bottom line suppressed by taxes
Growth in top line and improvement in operating margins seen over the past few quarters is not reflected in bottom line due to higher taxes and some of the pioneer tax subsidies having been expired.

Technical Analysis
Daily Chart
Margins continue to improve, driven by focus on efficiency and shift in revenue mix towards higher-margin products
Management continues to focus on higher value-added products (life sciences and medical), that might translate to higher margins. This drives management focus on not chasing just top line growth—would prefer growing into products, which have bigger bottom line impact. (Read Report)

Read Related Reports
1) Venture Corp - Steady, as it grows‏ by OCBC Investment Research, published on 9 November 2015

2) Venture Corp - Value Creation Boosts Margins‏ by RHB Research, published on 9 November 2015

3) Venture Corporation - Entering the Growth Sweet Spot‏ by Maybank Kim Eng Research, published on 8 November 2015

4) Venture Corporation - S$16.8m ‘bonus’ profit awaits in FY17 by CIMB Research, published on 7 November 2015

Source : Credit Suisse Asia Pacific Equity Research

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