SINGAPORE (Apr 24): UOB Kay Hian is maintaining its “buy” call on Venture Corporation with a lower target price of $30.60.

In a Monday report, analyst Foo Zhi Wei says Venture's share price has largely overreacted to Phillip Morris International’s (PMI) slower 1Q18 growth of I Quit Ordinary Smoking (IQOS) e-cigarette products in its key market of Japan.

This was attributed to sales reaching an older segment of users in their 50s at a faster-than-expected rate, resulting in a slowdown in growth due to slower adoption.

Nonetheless, PMI’s management reiterated that they remain on track to achieve their year-end target for IQOS.

While growth in Japan had slowed down, PMI’s 1Q18 results showed IQOS’s share of market (SoM) saw a significant pick-up in other markets. European cities in Slovakia, the Czech Republic and Ukraine showed a near doubling in SoM on a q-o-q basis.

Elsewhere in South Korea, growth momentum for IQOS continued to be strong, reaching a 7.3% SoM, compared to 5.5% in 4Q17.

In addition, while there is no news with regards to US FDA approval, this is still expected to be secured within 2Q18.

Meanwhile, Venture’s supplier for IQOS plastic components, Xiamen Intretech reported that 1Q18 revenue rose 11% y-o-y, but dropped 30% q-o-q due to production orders being seasonally high in 4Q17.

In its management guidance, Xiamen Intretech remarked that 2Q18 orders for IQOS plastic components would be lower, which will result in 1H18 revenue falling by 0-15% y-o-y.

“This translates to 2Q18 revenue coming in 2-32% lower q-o-q, by our estimates,” says Foo.

The analyst notes that although revenue contribution from IQOS may stand out among the Test & Measurement/Medical/Others segments, there are also several other products that have driven the group’s growth in 2017 and expects this to continue into 2018.

As at 2.53pm, shares in Venture Corp are trading $1.74 or 6.8% lower at $23.83 or 15.7 times FY18 pearnings with a dividend yield of 2.4%.

Slower demand in Japan but Venture expects Europe, South Korea to pick up the slack

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