While Venture Corporation’s 2Q20 earnings of $70.2 million came mostly within analysts’ expectations, they remain mixed on the company’s prospects moving forward.

See: Venture Corp reports 2Q20 earnings of $70.2 mil, declares interim dividend of 25 cents per share

DBS Group Research analyst Ling Lee Keng and CGS-CIMB Research analyst William Tng have maintained their “buy” recommendations on the counter as they both expect the company to do even better for 2H20 on the back of strong demand and steady recovery of the supply chain.

Ling has maintained her target price of $20.70, while Tng increased his to $20.14 from $16.78 previously.

“Despite the difficult operating environment, the group delivered a strong sequential quarterly recovery. This was underpinned by its resilience due to a diversified customer portfolio and nimble adaptability to business changes,” says Ling, who deems the group’s 1H20 performance to be “in line” with her forecasts.

“Despite the adversity, VMS still managed to improve its net margins to 10.1% in 2Q20 (vs 9.0% in 1Q20)… Furthermore, against the general market trend of lower dividend, VMS declared a higher dividend per share (DPS) of 25 cents (vs 20 cents last year) on further improvement in its net cash level,” says DBS’s Ling.

Going forward, Ling has identified several key growth areas for the group, which includes Life Science, Medical Devices & Equipment, Networking & Communications and Semiconductor-related Equipment domains.

Ling has also maintained her forecasts of earnings per share (EPS) of $1.11, and DPS of 70 cents for FY20F.

Meanwhile, CGS-CIMB’s Tng has slashed Venture Corp’s EPS for FY20F by 8.6% as the group’s net profit came in below his expectations at 39% of his FY20F target.

Believing that 2Q20 marks the bottom of the barrel for the stock, Tng believes that the group will see continued demand from customers in the life science, medical devices & equipment, networking & communications, and semiconductor-related equipment domains in 2H20.

However, Tng feels that FY21F is the year to watch for the counter, if all goes well.

“The multiple change (previously 12.5x, 0.5 standard deviation below its 13-year forward average P/E of 15x) reflects a potential re-rating in FY21F if new product introductions by Venture are successful. Venture has guided that its R&D labs have plans to subsequently release a number of newly developed products into manufacturing commencing early-2021,” he says.

Tng has estimated core EPS to come in at $1.07 and DPS of 70 cents for FY20F.

On the other hand, Maybank Kim Eng analyst Lai Gene Lih has maintained “hold” on Venture Corp as the recovery looks priced in. This comes despite the fact that the company’s profit after tax and minority interests (PATMI) came in line with the brokerage’s and street estimates.

While Lai has trimmed the group’s FY20-22E EPS by 3-7% to “adjust for a slightly softer recovery profile”, he has increased its target price to $18.46 from $14.66 previously.

Despite the rating, Lai says he continues to favour the stock over the long-term for its exposure in domains that enjoy secular growth such as 5G, genomics, and health and wellness.

“Long term, we see prospects for: i) margin accretion through helping customers launch market-leading life science/ med-tech products; ii) growth in new domains (e.g. semiconductor equipment); and iii) continued operational excellence, as seen with the proactive measures VMS has taken to handle Covid-19 disruptions,” he says.

“We believe these may boost earnings quality over time and may help the stock re-rate. As such, we lower our cost of equity (COE) assumption to 8.4% from 9%,” he adds.

Lai forecasts EPS of $1.01 and DPS of 75 cents for FY20e.

Conversely, PhillipCapital’s head of research Paul Chew has downgraded his recommendation on Venture Corp to “neutral” with a higher target price of $18.40 (previously $16.60).

Chew, too, expects 2H20 to be stronger than 1H20, which saw a one-month-los in revenue.

“We expect some spillover of uncompleted orders to occur into 2H20. Venture mentioned a number of new products to be released in early 2021,” he says.

As such, Chew has raised FY20e PATMI by 5% and valuation metric to “account for the higher visibility in the recovery as the lockdown eases”.

“Our gross margin forecast is increased by 1% point to 26%. We nudged up our valuation metrics to 16x PE (prev. 15x). Higher valuation is warranted as recovery is underway and earnings temporary depressed by the pandemic. VMS is paying an attractive 4.4% yield, well supported by an $833 million net cash balance sheet. New life science projects and shift in the supply chain from China to SE Asia will be supportive of revenue growth,” he adds.

As at 4.09pm, shares in Venture Corp are trading 13 cents higher, or 0.7% higher, at $20.13.