(Aug 14): Venture Corp’s shares opened 3.5% higher at $14.36 on Aug 7, the first trading day after the company released stellar results for 2Q. Earnings at the technology products and solutions provider surged 61% to $69.8 million, from $43.3 million in 2Q2016. Revenue increased 48.3% from $683.3 million to $1 billion. Net margins also showed improvements, moving up to 6.9% in 2Q2017 from 6.4% in 2Q2016.

The company’s chief financial officer, Ng Chee Kwoon, declined to name a specific revenue driver, merely saying: “Revenue improvements have been broad-based, with the majority of customers recording y-o-y improvements.” Ng also attributed some of the gains to changes within the company, although he did not elaborate. “Because of all these things that we are doing, [we have seen] some success... with some of the segments and customers in different fields. [So] our margins have also gone up,” says Ng.

“Frankly, to grow margins and revenue is not easy for a lot of our peers. Even if they can grow revenue, the [margins] can go in the other direction. But for us to be able to grow revenue, hold our margin and further improve on it means there’s actually something we are doing different from our peers.”

Optimism abounds In light of the strong performance, analysts continue to be bullish on Venture’s stock. Bloomberg data shows all eight analysts with coverage of the stock have a “buy” call.

Jarick Seet, an analyst at RHB Research Institute Singapore, has raised his price target from $14.10 to $14.70. “The last time Venture secured revenue of [more than] $1 billion was during 2Q2007. A decade later, the group has managed to surpass that amount,” Seet says in an Aug 7 report. “Going forward, we believe that Venture would likely continue to improve its margins in the remaining quarters of FY2017… through a shift in revenue mix to higher margin projects.” Venture has since surpassed Seet’s price target, closing at $15.70 on Aug 8.

Seet also sees Venture’s focus on operational efficiencies across its value chain helping to lower costs. He is projecting a 20% increase in Venture’s dividend payout for FY2017. “Venture has been paying 50 cents a share for the past few years, despite a recovery in its results. However, with the superb 1H2017 [results], we think the dividends given would likely be raised to reward shareholders if such a performance can continue.”

Eugene Chua, an analyst at OCBC Investment Research, has also raised his fair value for Venture — from $13 to $14.80. In his Aug 7 note to clients, Chua highlights management’s “impressive execution of its strategy to pursue value creation for its customers” and continuous efforts to increase productivity and efficiency.

“Looking ahead, as Venture makes progress on its strategy of value creation for its customers by engaging in research and development work alongside its customers, we expect Venture to continue to capture additional opportunities,” he adds. These may include new programmes across its existing customer base or new customers. “Coupled with its lean and efficient manufacturing capabilities, as well as strong engineering bench strength, we expect margins to expand further alongside revenue growth.”

CapitaLand also delivers strong earnings Shares in Venture have gained 13.9% over the past week, which has helped the performance of our portfolio a little. Including dividends, our total return is now 10.2% versus the Straits Times Index’s return of 15.2%.

Other strong performers over the period of Aug 1 to 8 were logistics provider Cogent Holdings, up 2.54%, and landlord and developer UOL Group, up 2.65%.

CapitaLand’s results for 2Q showed a 97% increase in earnings to $579.3 million, from $294 million in 2Q2016. However, revenue for the quarter dipped 12.3% to $992.4 million from $1.1 billion. The group has divested $2.4 billion worth of assets, redeploying $2 billion to higher-yielding ventures. Capita- Land sold a 50% stake in One George Street for $84.6 million on May 2. It also sold Wilkie Edge on July 3 for $280 million.

“We will continue to reconstitute our portfolio by realising the value of optimised assets and redeploying capital to higher-yielding assets and ventures. The positive momentum of our mall’s network expansion as well as [serviced residence brand] Ascott’s global platform will provide key data points on the flow of people, businesses and capital for us to make major capital deployment decisions,” says Lim Ming Yan, the company’s president and group CEO.

CIMB Research analyst Lock Mun Yee has raised her price target slightly — from $4.19 to $4.21 — citing good results from Singapore and China projects.

In an Aug 3 report, Lock says: “Ninety-five per cent of its launched projects [in Singapore] have now been taken up, including 59% of Victoria Park Villas. The remaining Singapore residential inventory makes up a small 2% of CapitaLand’s total assets.” Operating metrics for CapitaLand’s malls in China also continue to hold up, she adds. “The newly opened RC Hangzhou, RC Changning and RC Shenzhen enjoy close to 100% committed occupancy, and Melawati Mall soft opened in July with 71% of its space taken up. There is potential for an earnings uplift as these properties ramp up.”

OCBC Investment Research analyst Eli Lee has also raised his fair value on CapitaLand — from $4.07 to $4.13. “We like that management remains focused on achieving its long-term return on equity target of 8% to 12%, actively reconstituting its portfolio and recycling capital into acquisitions and greenfield projects, such as Golden Shoe Car Park, while at the same time exercising considerable discipline in capital allocation, which is critical in our view,” he says.

Lee cautions that CapitaLand could face some difficulty replenishing its “almost depleted” domestic landbank at reasonable costs, given that the residential market is likely “bottoming out” and other developers are competing aggressively for new sites. “Despite a bullish bid of $1,071 psf, CapitaLand’s consortium had missed the top bid in the recent government land sales tender for a site in Woodleigh Lane, which drew a large pool of 15 bidders,” he says.

Nevertheless, we continue to have confidence in CapitaLand’s management. We are therefore retaining our position in this counter.

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