Expect Healthy Earnings Growth In 1Q22 On The Back Of Positive Outlook
We expect VMS to report 1Q22 earnings of S$78m (23% of 2022), representing a 20%
yoy growth. The strong growth will be driven by: a) robust demand outlook from VMS’
customers, b) improvement in the global component shortages, and c) easing of border
restrictions and restrictive measures in Malaysia. VMS is trading at an attractive
valuation of 2022F ex-cash PE of 12x vs its clients’ average PE of 28x along with a
dividend yield of 4.7%. Maintain BUY and target price of S$22.80.
WHAT’S NEW
• Robust demand outlook from VMS’ customers. In the list of Venture Corporation’s (VMS)
customers that we track, all the customers are guiding for revenue growth in the range of 5-
16% yoy for 2022. This trend is consistent with VMS’s latest outlook statement which
highlighted that it expects a robust demand outlook based on customers’ orders and
forecasts across various technology domains. In the life science domain, demand for
products in the area of analytical instruments remains strong. Growing trends in nextgeneration sequencing and other breakthrough technologies where its R&D labs are
engaged in are driving demand. Positive market momentum is also visible across
instrumentation, test and measurement, networking and communications, as well as
advanced industrials domains. More importantly, we believe VMS could capture higher
growth than its customers’ revenue growth, given its ability to provide customised solutions
for new product launches and entry into new high-growth domains.
• Improvement in global component shortages. In VMS’ response to questions received
from shareholders pre-AGM dated 21 Apr 22, it highlighted that the global components
shortage is easing for some parts and by working closely with its customers and suppliers,
VMS has created several pathways to overcome the shortage problem. In addition, our
channel check with other manufacturing companies also suggests that the global component
shortages are easing due to the reopening especially in Japan and Korea. Also, in Feb 22,
Hon Hai, the biggest assembler of iPhones, highlighted that a major improvement in part
shortages is likely in the first quarter, with overall supply constraints set to ease in the second
half of the year.
• Malaysian plants should enjoy improved production capacity from removal of COVID19 restrictions. Since Jan 22, all the states in Malaysia, where VMS has the most of its
manufacturing facilities in, have entered into Phase 4 of the National Recovery Plan (NRP),
where the COVID-19 and movement restrictions have all been removed. To recap, VMS
reported a soft 1Q21 due to the movement control in Malaysia and global component
shortages.
STOCK IMPACT
• VMS remains positive on its long-term growth as it continues to engage and collaborate
with successful and innovative customers in various high-growth, fast expanding market
segments.
• Positive signal from recent share purchases of the Executive Chairman. On 8 Nov 21,
Mr Wong Ngit Leong, the Executive Chairman and largest shareholder of VMS, acquired
200,000 shares at S$18.73/share. Previously, his acquisition of 566,300 shares at an
average price of S$14.45/share from Jul-Sep 17 turned out to be a strong positive signal as
VMS’s share price hit an all-time high of S$29.50 in Apr 18.
• Strong balance sheet and good dividends provide limited share price downside. As of
end-21, VMS recorded net cash of S$808m (accounting for about 15% of its current market
cap) and led the pack of US-listed peers which were mostly in net debt positions. More
importantly, VMS has consistently paid the same amount of dividends or better than that in
the preceding years.
• Positive guidance of key customers:
- Broadcomm: Expects 1Q22 revenue growth of 14% yoy.
- NCR: 2022 guidance of 12-15% yoy revenue growth and 27-39% yoy EPS growth.
- Agilent: 2022 guidance of 7% yoy revenue and EPS growth.
- Fortive: Expects 2022 revenue growth of 7% yoy.
- Keysight: Expects 2022 revenue growth of 5% yoy.
- Illumina: Expects 2022 revenue growth of 14-16% yoy.
- Waters: Expects 2022 revenue growth of 6% yoy.
- Philip Morris: Expects 2022 revenue growth of 4-6% yoy and EPS growth of 8-11%.
EARNINGS REVISION/RISK
• We maintain our earnings forecasts.
VALUATION/RECOMMENDATION
• Maintain BUY and target price of S$22.80, pegged to +1SD above its forward mean PE, of
19.5x on 2022F earnings. Currently, VMS offers an attractive dividend yield of 4.7%