Still seeing positive trends
- Increasingly, customers’ attitude is to “just deal with” the economic uncertainties compared to earlier caution.
- Impact from recent M&A among customers expected to remain beneficial for Venture.
- Maintain BUY, with unchanged forecasts and Street-high TP of SGD10.25, based on 10% discount to peer average.
Still positive
- Market conditions for Venture remain positive. Management said it is business as usual, despite soft economic conditions in Europe and China.
- Customer concerns over Europe and China appear to have been factored in and caution from earlier in the year has given way to a more sanguine attitude. Thus far, Venture has not seen any major reactions by its customers.
- Instead, there is a feeling of “just deal with it”.
- As such, we remain optimistic on Venture’s business trajectory this year.
- The higher-growth segments for Venture are still in the following:
- Industrial Products – The Singapore factory is seeing a good run-rate and looking positive on a full-year basis. Demand is mainly coming from highend communications devices where Venture is able to get pioneer tax exemption. Customers in the measurement space, such as Waters, are also reportedly doing well.
- Life Sciences – Also doing well. Revenue is becoming quite substantial and there is a good chance that Venture will start to break it out soon as a separate segment. Margins are also high as the production content is R&Dintensive for customers such as Illumina and Thermo Fischer.
- Networking & Communications – This segment has done well and is set to continue to perform, in our view, given growing demand for carrier and non-carrier server and storage connectivity. Venture serves leading customers such as QLogic, Oclaro, Avago and Verifone in this segment. In addition, customer M&As may also benefit Venture.
- There are also some soft areas. However, this a trend that has been in place for years as corporate capex for certain segments has not taken off, hence it is not a surprise to us.
- The main areas of softness for Venture continue to be in Printing & Imaging (with the exception of 3D printers), Data Storage and Retail Store Solutions. They accounted for 10.6%, 10.6% and 28.6% (together with Industrial Products) of revenue in 1Q15, respectively.
Beneficial M&A trend continues
- The most recent M&A events among Venture’s customer base involve the following:
- In May 2015, Avago Technologies announced the acquisition of Broadcom for USD37b in shares and cash.
- In Feb 2015, Avago had also acquired Emulex, a networking company, for USD606m in cash.
- Both Broadcom and Emulex are existing customers of Venture.
Positive impact likely
- Unlike 2012 and 2013, when M&As were mostly negative for Venture, the current wave that started in 2014 has been mostly positive.
- Avago is an existing customer of Venture in the Networking & Communications space. Broadcom is an indirect customer of Venture through QLogic, which bought their Ethernet controller business in 2014 for USD147m in cash. We are hopeful this will lead to spill-over business for Venture.
- Both Avago and Qlogic are among Venture’s top 20 customers. Emulex is also an existing customer, but has not done so well lately. Avago has started to improve the outlook for Emulex and this could lead to better business for Venture as well.
What’s Our View
- Maintain BUY with TP unchanged at SGD10.25, based on 18x FY15 EPS, or 10% discount to peer average.
- Venture offers close to 7% dividend yield at this price. We think DPS could be raised back to SGD0.55 this year.
(Gregory Yap)
Source: http://www.maybank-ke.com.sg
