Results Analysis: 9M23/3Q23 results below expectations, hit by weak demand and inventory destocking
- 9M23/3Q23 results below expectations, hit by weak demand and inventory destocking
- Q-o-q decline slowed in 3Q23; better 4Q23 with various NPIs in the pipeline forecasted
- Earnings for FY23F-25F cut by 7%/8% on weaker-than-expected 9M23 results
- Maintain BUY with revised TP of S$15.10. Current PE valuation attractive at below -2SD
9M23/3Q23 results below expectations. Venture reported 9M23 revenue of S$2,288.5m (-18.8% y-o-y) while net profit was down 25.2% y-o-y to $203.3m. Net margin of 8.9% was lower than the 9.6% in 9M22. The weak results were mainly due to soft customer demand and ongoing inventory destocking.
For 3Q23, revenue came in at S$706.3m (-30.9% y-o-y, -7.1% q-o-q). Net profit of S$63.3m was down 35% y-o-y and 4.7% q-o-q. Net margin of 9.0% was slightly higher than 8.7% in 2Q23 but still lower than the 9.5% in 3Q22. Overall, 3Q23/9M23 revenue accounted for 21%/67% of our forecasts while net profit accounted for 21%/69%, well below expectations.
3Q23 and 9M23 performance
|(S$m)||3Q23||y-o-y (%)||9M23||y-o-y (%)|
|Profit before tax||78.3||-34.1||331.7||-24.7|
|PBT margin (%)||11.1||-50bps||11.8||-90bps|
|Net margin (%)||9.0||-50bps||9.6||-70bps|
Source: Company; DBS Bank
Healthy balance sheet with high net cash. Venture continues to maintain a healthy balance sheet, with a net cash position that further increased to S$956m (c.27% of current market cap) as of 30 September 2023. The group has zero debt, which stacks well against its peers in the net debt position, especially in the current high interest rate environment.
Further improvement in inventory level. Inventories continued to record sequential improvement, with a 5.4% reduction q-o-q and 24.3% reduction y-o-y to S$949m as of 30 September 2023. This is in line with the overall inventory picture for the industry, as we expect the inventory level to normalize by 4Q23.
3Q23 could be the worst quarter, expect q-o-q improvement for 4Q. Given that the macro picture is on a recovery path with an improving outlook for export electronics for countries such as Singapore and Taiwan, we could see a better 4Q23 for Venture. 3Q23’s q-o-q decline in both revenue and net profit has also slowed compared to the previous two quarters.
Slowdown in decline for 3Q23 revenue and net profit
|(q-o-q chg %)||1Q23||2Q23||3Q23|
Source: Company; DBS Bank
Various NPIs in the pipeline. The group is working on several new product introductions (NPIs) with both existing and new customers, where productions are starting to ramp up and on track to be rolled out next year. These products are in various domains, including the wellness and premium consumer space, industrial medical life Science, Test & measurements, power control, and semiconductor.
Cut FY23F-25F earnings by 7% to 8%. Given the weaker-than-expected 9M23 results, we reduced our earnings estimate for FY23F-25F by 7-8%. Our target price was reduced to S$15.10 (previously S$15.40), based on a c.14x PE (-1SD from its four-year average) on FY24F earnings. Maintain BUY.
Attractive valuations. Venture’s PE has plunged below -2SD of its historical mean and is currently trading at a c.11x forward PE, below its COVID pandemic low of c.12x. We believe the concerns surrounding its removal from the STI is overblown. Although among the 30-STI stocks, Venture’s market capitalization is currently among the lowest, thus there is minimum risk that it will be removed. Based on the rules for stock insertion or deletion, a constituent company will be deleted if it falls beyond the 40th position and a new company will be added if its market capitalisation rises to the 20th position and above. For now, we do not see the former happening, though this will likely weigh on sentiment near term.