Free cash flow generator
- FY23 net profit fell 26.9% yoy to S$270.0m, slightly above at 101.3% of our full-year forecast but 2.3% below Bloomberg consensus.
- Net cash (zero borrowings) hit a record S$1.06bn in FY23, while free cash flow hit a record S$473.9m.
- A final DPS of S$0.50 (unchanged yoy) was declared. We reiterate our Add call with a TP of S$15.93, based on 14.6x P/E (15-year average).
FY23 net profit slightly better than expected
FY23 revenue fell 21.7% yoy to S$3,025.0m and was 3.9%/3.7% below our/Bloomberg consensus’ full-year expectations. The revenue decline was due to: a) weaker customer demand arising from soft macroeconomic conditions, and b) customers’ ongoing inventory destocking, resulting in lower demand. FY23 net profit fell 26.9% yoy to S$270.0m, slightly above our S$266.6m forecast but 2.3% below Bloomberg consensus’ full-year expectation. A final DPS of S$0.50 was declared. Given the revenue decline and the higher cost base in FY23 arising from inflationary conditions, Venture Corporation’s pre-tax margin fell from 11.6% in FY22 to 10.9% in FY23. A higher effective tax rate of 18.2% in FY23 (FY22:
17.6%) eroded net profit margin to 8.9% in FY23 (from 9.6% in FY22). On the cost side, Venture reduced its employee expense by 10.6% yoy, but R&D expenses rose 77.8% yoy as the group engaged customers on potential new products. Net cash at end Dec-23 was S$1.06bn.
Management expects a stronger 2H24F
Management guided that it expects customer demand to be stronger in 2H24F and that efforts to explore new opportunities with various customers in different technology domains
are ongoing.
Reiterate Add; TP raised slightly to S$15.93
We reiterate our Add call on Venture given its 5.32% dividend yield (over FY24-26F) and potential for EPS growth resumption in FY24-26F. We retain our valuation basis of 14.6x FY25F P/E (15-year average). Given the soft macroeconomic conditions, we reduce our FY24-25F revenue forecasts by 3.5-3.9%. This led to a 0.4% reduction in our FY24F net profit forecast and a 0.245% reduction in our EPS forecast as Venture cancelled some of the shares bought back from the market. Our FY25F net profit is unchanged despite the revenue cut as we assume a slower pace of R&D spending in FY25F, but our EPS forecast increased by 0.209% due to the lower share base. Re-rating catalysts include: new product launches by customers and better-than-expected revenue opportunities over FY24-26F as further business opportunities arise from corporations keen to diversify their production orders from China to Malaysia. Key downside risks include: a) potential supply chain disruptions affecting the availability of parts and components, b) labour shortages potentially lowering its production output, and c) a worsening global economic outlook potentially further reducing orders from customers
