SINGAPORE (Nov 5): RHB Research and OCBC Investment Research are maintaining their “buy” calls on Venture Corp while lowering their target price and fair value estimate to $19 and $20.13, from $22.20 and $23.23, respectively.

This comes after the group last week reported a y-o-y decline in 3Q18 earnings on lower revenue.

While RHB has slashed its FY18-19F earnings per share (EPS) estimates by 10-7%, respectively, it remains confident that a V-shaped recovery is highly possible for Venture in the subsequent quarters, especially if the trade war between US and China is resolved.

The research house’s revised target price is pegged to a historical low P/E mean of 14 times, versus the previous valuation of 15.5 times FY19F P/E.

In a Monday report, RHB analyst Jarick Seet says the short-term selling pressure triggered by Venture’s recent negative results could present investors with opportunities to accumulate on the stock.

This is because the same factors the slowdown in 3Q – namely the transitory effect of Venture’s customers having new product introductions or undergoing M&A – are likely to contribute positively to a recovery in 4Q, as these new product introductions are likely to occur during the quarter, in his view.

“The customers undergoing M&A transitions should also see business activity pick up after the integration processes are completed – which will be positive for the company in subsequent quarters. All in all, management has also seen business pick up strongly across all segments. We expect it to recover strongly in 4Q18, and this may likely continue for subsequent quarters in 2019,” he adds.

Highlighting that the group managed to keep its net profit margin (NPM) at 10.5% in spite of its sharp drop in revenue in the latest quarter under the review, Seet is expecting wider NPM ahead such that Venture benefits from operating leverage.

He also expects the group to pay a dividend per share of 70 cents this year, which is slightly higher than that of FY17 and represents a FY18F yield of 4.3%.

On the other hand, OCBC is maintaining its 15 times target P/E given Venture’s stronger-than-average NPM and healthy balance sheet, although it also assumes more conservative earnings estimates for FY18 and FY19.

Its analyst Joseph Ng attributes the recent 3Q earnings disappointment to an “unfortunate confluence of negative transitory events”, but like RHB’s Seet, expects a q-o-q recovery in 4Q18.

“We are also encouraged to note that despite the macro rumblings, feedback on customer sales has been encouraging till date, with purchase orders backing up this optimism,” says Ng.

As at 11.15am, shares in Venture Corp are down by 9.8% at $14.67 or 1.8 times FY18F book value based on RHB estimates.