VENTURE CORPORATION, one of the leading global electronics services providers with sales of $3.4 billion last year, is steadily returning to the limelight. With analysts saying the neglected tech stock could re-rate higher, dealers across Raffles Place and Newton’s Circus are sitting up and taking notice of the company.

 

While labour unrest in China and the likelihood of wage hikes have been grabbing headlines and causing investors to de-rate selected tech stocks, UBS, in a 14-page report dated June 24, is upgrading the stock to a Buy from Neutral on better outlook and valuations, with a target price of $10.50.

 

For one, the UBS report points out that the impact of any potential wage hike in China is likely to be limited. “Venture outlined that it doesn’t expect a meaningful impact and the situation is manageable,” say Taiwan-based analysts Arthur Hsieh and Edward Yen. According to the duo, although inventories could increase, they are backed by firm orders. Moreover, Venture has not recorded any order cut from clients so far. “While consumer electronics-related demand may be more volatile, we point out that Venture has limited consumer electronics exposure and corporate segment demand remains relatively steady,” the report states.

 

Indications from the company’s clients in the Test and Management (T&M) sector suggest they could record stronger growth, the report states. Gartner recently forecast semiconductor capital equipment spending to surpass US$35.4 billion ($49.2 billion) in 2010, to register a growth of 113% year-on-year. “We view this as a positive read-through to Venture’s T&M segment. We estimate Venture’s T&M segment to grow 38.6% y-o-y, outperforming growth in all other business segments,” the UBS analysts say.

 

Meanwhile, Venture’s key clients Hewlett-Packard (HP) and Agilent’s recent results point to a better outlook. HP, Venture’s main Printing and Imaging (P&I) client, reported 2Q10 Imaging and Printing Group’s (IPG) revenue at US$6.4 billion, up 8% from a year ago. HP’s total printer unit shipments were up 9%, with consumer printer units growing 15%. Although sales of commercial printers declined 8% due to component shortage, HP expects double-digit unit growth for IPG for the full year 2010, the UBS report says.

 

In addition, Agilent’s second quarter orders were up 31% y-o-y, and revenue was 21% higher y-o-y at US$1.27 billion. Geographically, Agilent experienced growth in all countries it operates in, and has guided for revenue growth in the third quarter of between 16% and 19%, and increased full-year EPS guidance. Venture’s RSS (Retail Store Solutions) client, NCR and Micros Systems, too cited improved business conditions in their quarterly results.

 

Also, its EMS (Electronic Manufacturing Services) competitor Jabil reported better-than-expected 3Q10 revenue of US$3.5 billion (a 32% increase y-o-y and 15% rise q-o-q) underpinned by growth in the Industrial, Instrumentation & Healthcare and networking segments. Jabil is guiding for a 10-16% q-o-q topline growth in its next quarter.

 

No surprise then that UBS is raising its 2010, 2011 and 2012 EPS for Venture by about 2.5% to 68 cents, 75 cents and 80 cents respectively. The UBS analysts say that the stock’s forward PER of 12.6 times from this year is lower than its five-year historical average of 14.6 times. “Even though Venture is more expensive than most Taiwanese peers, we point out that Venture’s margin could be more sustainable given its focus on industrial applications and the limited risk to the Chinese labour wage hikes.”

 

Elsewhere in the tech sector, CIMB says that Broadway Industrial Group offers a 43% upside with a target price of $1.67, pegged at eight times FY11 PER. CIMB reckons that Broadway could be a potential M&A target, following Armstrong Industrial Corp’s announcement that a major shareholder was approached by a third party expressing interest to consider a possible offer for the shares.

 

Dealers point out that Venture’s chart pattern looks good. Indeed, prices are attempting to rise above the 50-day, 100-day and 200-day moving averages at $9.00. Momentum has turned up as has ADX and volume is expanding — all the factors needed for a successful breakout are in place. The immediate upside is at $9.83, resistance is at $10.00 and UBS has a target of $10.50. Venture last traded at $9.06.

 

Office property stocks may also attract some interest. Keppel Land, a proxy to the office market — it has a one-third stake in Marina Bay Financial Centre — appears poised to clear the $3.80-$3.90 resistance level successfully. The breakout — the counter last traded at $3.95 — indicates a target of $5.00.

 

Other office market proxies such as K-Reit Asia and CapitaCommercial Trust also appear ready for breakouts. K-Reit needs to clear $1.12 for a target of $1.26. It traded at $1.10. If CCT is able to break out of $1.20 (it ended at $1.19 on Friday) that would give an upside of $1.36.