4Q21F: qoq recovery expected

■ We think Venture Corporation likely secured enough components and labour force to see its 4Q21F net profit grow 19.9% qoq to S$92.4m.
■ In our view, the company did not face any severe operational disruptions from Covid-19, labour shortages, or the recent flooding in Malaysia.
■ Reiterate Add and our TP of S$23.32. We think its FY21 results could be released on 25 Feb 2022.

4Q21F net profit could have grown 6.6% yoy

As Venture reported its FY20 results on Friday, 26 Feb 2021, we think it could release its FY21 results on Friday, 25 Feb 2022 (as 26 Feb 2022 is a Saturday). From what we know, there had been no adverse impact to Venture’s operations in 4Q21F, from either Covid-19, labour shortages or the flooding in Malaysia. As of end-Sep 2021, Venture recorded an inventory of S$907.9m (2Q21:S$766.6m) on its balance sheet; we think that the company would have enough components to support our 4Q21F revenue expectation of S$961.4m (+16% yoy) and our 4Q21F net profit growth of 6.6% yoy (+19.9% qoq) to S$92.4m.

Remains a strong partner for life sciences customers

We think Venture remains a strong manufacturing partner in the life sciences industry. We note that the group has enhanced collaborations in the areas of sample and library preparation for next-generation sequencing, precision medicine, infectious disease research and proteomics science. Another differentiating factor for Venture is its focus on working early with partners via its R&D labs. The group has been exploring ways to integrate its technology expertise across life science technologies, as well as medical devices and equipment, to develop new solutions and service offerings for customers.

Illumina still positive on its long-term outlook

In an investor presentation on 10 Jan 2022, Illumina commented that it had lodged the highest number of international product shipments in its history in 2021 and guided that its FY22F revenue could grow 14-16%, driven both by hardware and consumables. According to Illumina’s investor presentation slides, oncology testing (for which Illumina’s equipment can be used) could be a US$75bn addressable market by 2035F.

Reiterate Add

Reiterate Add and our TP of S$23.32 for Venture, based on an unchanged target P/E multiple of 17.3x (0.5 s.d. above its 20-year average of 15.1x) on FY23F EPS. Re-rating catalysts are new product launches by customers and improvements in component availability. We see key downside risks as slower earnings growth due to a prolonged component shortage situation and a possibly more competitive environment. If slower growth persists over FY22-23F, Venture’s valuation could revert to its historical 20-year average P/E of 15.1x. The mitigating factor could be incremental M&A that grow Venture’s capabilities, especially in life sciences, in which the company is strong.