Venture kept at 'sell' by UOB on grimmer production outlook

Venture kept at 'sell' by UOB on grimmer production outlook

By: 
PC Lee
06/12/18, 11:48 am

SINGAPORE (Dec 6): UOB KayHian is maintaining Venture Corp at “sell” given increasing risk production share of IQOS (I quit ordinary smoking) devices could be shifted away to another contract manufacturer by Philip Morris which is seeking to improve economics.

In a Thursday report, analyst Foo Zhi Wei says UOB channel checks into the IQOS supply chain indicate that the second manufacturer, Flex has reached the supplier concentration limit for Philip Morris although UOB was not able to ascertain as to whether Venture has similarly hit a production ceiling.

Venture is currently producing “heat not burn” tobacco products IQOS 2.4+ and IQOS 3 products while Flex is currently producing IQOS 2.4+ and IQOS 3 Multi products. From what UOB understands, Philip Morris is likely to introduce a third manufacturer which will likely produce IQOS 2.4+.

Foo says a third manufacturer entering the fray will likely try to do so at a competitive price compared to the current incumbents with Flex likely to be more cost effective with a lower cost base between the two.

“Logically, Philip Morris will want to shift some of its higher cost production to this new manufacturer to improve economics on its IQOS devices,” says Foo, adding that Flex could be involved in IQOS 3 production as well.

In a Dec 3 release, Nikkei’s Malaysia Manufacturing PMI came in at 48.2 for Nov, a decline from 49.2 in Oct. Foo says this points to a sharp deterioration in the manufacturing sector since May and extends the current period of decline to two months.

Venture has significant capacity based in Malaysia and as the production outlook of other clients may slow down in 2019, this points to earnings downside risk for the company.

“Maintain “sell” with an unchanged target price of $12.90,” says Foo.

Shares in Venture are down 49% from its April peak of $29.51 at $15.01 or 25 times FY19F earnings.

HNA unit's lenders seize assets as payment deadline missed

(Apr 23): Lenders to HNA Group Co.’s CWT International seized control of assets in Singapore, China and the US after the unit failed to repay amounts due on its credit facility. Assets that are being taken over include shareholdings of Singapore-based CWT, with investment properties in the US and golf courses in China, according to a statement. Lenders had threatened to take control of the assets unless CWT made payments by 9 am on April 17 tied to a HK$1.4 billion ($242 million) loan taken out in September. Operations of CWT are continuing as usual and trading in CWT International sha....
Read More >>

Billionaire Kwek keeps it in the family with luxury condo sales

SINGAPORE (Apr 23): Billionaire property developer Kwek Leng Beng’s latest luxury condo in Singapore has seen robust demand since its launch last month. It doesn’t hurt that some of his own relatives have rallied to the cause. Kwek’s wife and son Cecilia Kwek and Kingston spent $9.8 million on an apartment in Boulevard 88, according to a City Developments exchange filing late Monday. His nephew and City Developments’ group chief strategy officer Kwek Eik Sheng snapped up another unit on one of the upscale project’s lower floors for a more modest $4.3 million. Kwek senior, as ch....
Read More >>

Don't underestimate the recovery potential of this education stock: UOB

SINGAPORE (April 23): UOB Kay Hian is starting coverage on Overseas Education Limited (OEL) at “buy” with a 46 cent price target, based on 10.4 times EV/EBITDA or a 15.4% discount to global peers’ 2019 average. In an initiation report on Monday, analyst John Cheong says he deems the stock’s valuations attractive at its current 8.3 times 2019F EV/EBITDA and an 8.2% dividend yield. Cheong views this yield level as sustainable due to OEL’s strong operating cash flows despite the recent relocation of its Orchard Road campus to Pasir Ris due to lease expiration. Although the move....
Read More >>