SINGAPORE (Nov 7): CGS-CIMB Securities is upgrading its call on Venture Corporation to “add” from “hold” previously as it rolls over to FY20F.

At the same time, the research house is lowering its target price from $17.83 to $17.44 after accounting for lower revenue growth expectations, which has led to a cut in FY18-20F core earnings per share (EPS) by 6.6-10.9%.

The new target price is based on a 12.3 times multiple, 0.5 standard deviation points below the 11-year average of 15.3 times.

CGS-CIMB’s move comes after Venture’s 3Q18 earnings disappointment, where profit came in at 21% and 68% of CGS-CIMB and consensus’s full-year expectations, respectively, due to product transition issues faced by customers.  

In a Monday report, analyst William Tng highlights how Venture has managed to maintain its net profit margin at 10.5% in the recent quarter despite the revenue decline, due to good cost management and a lower effective tax rate of 14.7% versus 15.2% in 3Q17.

Going forward, Tng sees opportunities for Venture arising from the ongoing US-China trade war, as the group has seen inquiries from new or existing customers regarding its ability to support them in manufacturing locations outside of China.

“The bulk of Venture’s manufacturing capacity is in Johor Bahru and Penang in Malaysia. In addition, Venture has a c.30.6-acre plot of land in the Batu Kawan Industrial Park in Penang, Malaysia, where the company can build additional facilities if needed,” says Tng.

He nonetheless remains cognisant of the risk of a global growth slowdown, which would reduce demand or hold back new product launches from Venture.

“Venture is working on several products that could lay the foundations for future growth… Catalysts are the launch of new products by customers, as well as the possibility of the acceleration of existing or new customers seeking to have more production outside of China. Downside risks could come from delays in product launches by customers,” comments the analyst.   

As at 11.18am, shares in Venture are trading 2.31% higher at $15.09 or 1.85 times Dec-18F book value.