Remains On Track For Growth
VMS continues to see healthy near-term demand from majority of its customers and has
an experienced task force to manage the recurring component shortages. Also, its
strong R&D capabilities have enabled it to redesign products to reduce dependency on
parts that are in shortage. Despite the higher inflationary environment, VMS strives to
maintain its net margin in the historical range of 9-10%. Maintain BUY and target price
of S$22.80 (pegged to +1SD, 19.5x 2022F PE).
WHAT’S NEW
• Continues to see healthy near-term demand from customers. Venture Corporation
(VMS) continues to see healthy demand from most of its customers recently. Despite the
increasingly uncertain environment, VMS should be able to deliver relatively resilient
performance given its highly diversified customer base across seven technology domains. In
addition, most of VMS’ customers are in industrial segments such as life science, medical
and testing, which are less sensitive to consumer sentiment. Customers are still looking to
launch new products to capture more market share. However, in the longer term, some of its
customers are turning more cautious due to the increasingly uncertain macro environment.
• Proactive management and differentiating capabilities help VMS overcome supply
chain disruptions. VMS continues to see component shortages and expects these
shortages to ease in 2023. However, VMS does not expect any major disruptions to its
production as it has several initiatives to overcome supply chain disruptions, which include:
a) redesigning products to reduce dependency on parts that are in shortage, b) working with
customers to obtain a longer order forecast for better procurement and production planning,
and c) increasing stockpiles of inventories and sharing the working capital burden with
customers. Combined with its strong design and R&D capabilities, VMS is able to provide
unique solutions to win market share and clients that are of high quality amid this uncertain
environment. In addition, VMS is sourcing its components globally and has recently started
to see an improvement in the supply of semiconductor chips in China as more local
manufacturers are manufacturing their own chips to overcome the supply shortage issues,
risk of sanctions and tariffs by the US.
• Targets to maintain net margin. Despite the inflationary environment of rising cost of
labour and raw materials, VMS aims to maintain a net margin of 9-10%, consistent with its
historical trend as it is confident in its ability to manage costs, negotiate higher prices with
customers and provide strong value-add to its customers. In addition, VMS is able to source
labour from a diversified range of countries given its established presence in Malaysia.
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 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’ share price hit an all-time high of S$29.50 in Apr 18.
• Limited share price downside due to strong balance sheet and good dividends. As of
end-1Q22, VMS had net cash of S$815m (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 at +1SD above its forward mean PE, of
19.5x on 2022F earnings. Currently, VMS offers an attractive dividend yield of 4.7%.
