On the path to recovery
- FY23 results in line; commendable net margin of 8.9% despite high inflationary pressure
- Foray into data centre ecosystem riding on the AI wave
- Stronger 2H24 vs. 1H24 expected; 1Q24 may be weaker both y-o-y and q-o-q
- No change in estimates; maintain BUY with higher TP of S$16.90. Valuations still attractive despite recent run-up
FY23 results in line; commendable margins despite challenging environment
FY23 results in line. 4Q23 net profit came in at S$66.7m (-31.9% y-o-y, +5.3% q-o-q) while revenue declined 29.5% y-o-y (+4.3% q-o-q). FY23 revenue was registered at S$3,025.0m, down 21.7% y-o-y, due to softer demand across its technology domains as well as customers’ inventory destocking. Net profit saw a 26.9% y-o-y drop to S$270.0m. Overall, FY23 revenue and net profit were in line with our expectations.
A 50Scts DPS was declared, similar to last year.
Commendable net margin of 8.9% for FY23 despite high inflationary pressure coupled with lower revenue. 4Q23 net margin improved further to 9.1% (from 9.0% in 3Q23 and 8.7% in 2Q23). FY23’s net margin of 8.9% was lower than the 9.6% in FY22. Nevertheless, it is still commendable given the high inflationary environment in FY23, coupled with lower revenue.
Strong NPI pipeline ahead. The new product introductions (NPIs) pipeline straddled across most domains, including the wellness and premium consumer space, industrial medical life science, test & measurements, power control, and semiconductor. With the gradual recovery of global economies, customers are now more ready to launch new products.
Foray into the data centre ecosystem, riding on the AI wave. The consistent push towards AI innovation, coupled with the proliferation of generative AI, has fuelled the growth of advanced servers and equipment. Given Venture’s strength in a diversified technology domain – including network & communications, security & safety, industrial IOT, computing & productivity systems and semiconductor – the group is able to ride on this trend, working with several data centre players to provide different forms of services. Venture has already been in this space for the past two to three years, and this offers a great opportunity for the group to grow further. Venture has also seen an increase in the number of customers in the semiconductor space, a key focus area for generative AI.
Healthy net cash position exceeding S$1bn. Venture continues to maintain a healthy balance sheet, with a net cash position of S$1.056bn (c.26% of current market cap) as of 31 December 2023, up 30% from a year ago. The group has zero debt, which stacks well against its peers in the net debt position, especially in the current high interest rate environment. Besides utilizing the cash for dividend payment and potential M&As, the group has also established a share buyback programme in November 2023 to purchase up to 10 million shares.
A stronger 2H24 vs. 1H24 expected; 1Q24 could be weaker y-o-y and q-o-q. Based on customer feedback, demand schedule will be stronger in 2H24 compared to 1H24. Hence, 1Q24 could be weak both on y-o-y and q-o-q bases, given that 1Q23 was still relatively strong, benefitting from some demand flow from the strong FY22. This observation is in line with our view for a more significant recovery for the downstream players in 2H24.
No change in estimates, maintain BUY with higher TP of S$16.90.
Valuations still attractive despite recent run-up.
The share price has gained c.24% from its low in end-October ‘23. Despite this, valuations are still very attractive, with a current PE of about 13x, below -1SD level from its five-year average. We believe there is further room to re-rate to at least the average PE level of c.16x, on the improving outlook. Our TP is raised to S$16.90 (previously S$15.10), pegged to 16x on FY24F earnings. Maintain BUY
