Venture Corp

Can anyone share the Short sell report on VMS by "Valiant Warriors" ? Thank you

(26-04-2018, 10:26 AM)newyorkcityboy Wrote: Can anyone share the Short sell report on VMS by "Valiant Warriors" ? Thank you

https://valiantvarriors.wixsite.com/home
PRESS RELEASE
24 April 2018

Venturing into the smoke

Venture Corporation (V03)
Our rating: Sell

It is a well-established fact that smoking kills. It infects the smoker’s lungs, turns it black and slowly but surely eats into his lifespan. The people around the smoker also suffer. Through no fault of their own, they, especially his loved ones, inhale the smoke that cigarettes generate. With prolonged exposure, cancer slowly tightens its grip around the lungs, stomach and throat.

Despite the years of warnings, and countless government regulations, people still smoke. For them, each inhalation fills them with warmth and joy, instead of death and ruin.

Investors have been inhaling Venture Corp’s smoke for too long. For a while it was good, enjoyable and plenty profitable. But the Grim Reaper is lurking and those who continue to pretend that this illusion is real will be burnt, badly.

Smoking guns

Venture Corp is one of the market’s most beloved darlings. A bellwether for the manufacturing sector, which has enjoyed a purple patch, Venture has seen its stock price triple over the past year.

The story they paint is a convincing one: A large cap blue-chip stock with a diversified customer base that is composed of some of the biggest companies in the world. If investors want to ride on the manufacturing surge, what better way to do it than to latch onto Venture Corp?

The story took hold and investors poured in. But not is all as it seems.

The first smoking gun came recently. Last week Philip Morris International’s (PMI) stock price plunged 16% after showing weak first quarter results.  PMI missed revenue estimates at $6.90 billion, compared with the $7.03 billion the street expected.The fall was blamed on a plateau of their I Quit Ordinary Smoking (IQOS) products - e-cigarettes which are supposed to be healthier for smokers.

For Venture, this is big trouble because it is a key supplier of IQOS to PMI. Investors took note and sold in a hurry, causing the stock price to fall 12 per cent in one day from its recent high.

Some analysts believe that the stock sell-off was overdone and insist that the stock remains a buy. We believe these analysts have their vision blurred in the smoke and are addicted to the exciting but ultimately ruinous illusion that Venture is.

Digging deeper

The cause for the optimism among some stock analysts is that the IQOS’ contribution to Venture is not significant. Estimates range from as low as 3 per cent, to as high as 11 per cent. This is backed up by Venture, which said that not one customer makes up more than between 5 per cent and 10 per cent of their total sales.

This is most probably an understatement of the truth of the matter. Part of this is probably the result of Venture being under strict confidentiality agreements with clients. At the least, the statement is misguided optimism; at the most it is an outright lie.

The truth is out there, far out there. Based on our extensive research, we believe that IQOS accounts for 30 per cent of Venture’s revenue.

Secondly, we have to ask about the extent of the damage IQOS has done to Venture. According to our sources, Q1 sales orders at Venture have declined by a staggering 50 per cent from initial 2018 forecasts.

This is partly affected by the entry of PMI’s second supplier, Flextronics, which is hungrier and more aggressive than Venture. Flex’s supply price to PMI is 20 per cent lower than Venture, which means they are producing  20 per cent more volumes too.

Venture should not be trading at 16x forward earnings. That is reserved for fast growth companies. Venture is anything but fast growing, and, in fact, quite the opposite after PMI’s fiasco. If you think last week’s 12% correction was harsh, you are wrong. It is not even enough to reflect the true value of the company.

This is just the start of the troubles for Venture. You will see the impact on the first quarter’s earnings tomorrow. We estimate that Venture will miss Q1 earnings by between 6 per cent and 8 per cent.

Don’t believe us? Look out for the Q1 earnings release, which will be released on April 25.

The bleeding won’t stop either. Like the cancer which spreads slowly first, then quickly, the company’s bright prospects will dim and then turn down, fast. Quit smoking, while you still can.

About Venture
Venture Corp Ltd is a Singapore-based company that provides technology services, products and solutions. It provides manufacturing, product design and development, engineering
and supply-chain management services.

About us
Valiant Varriors are a group of activist investors on the lookout for companies that are priced incorrectly due to the lack of transparency in large listed stocks in Singapore. If the companies themselves don’t want to come clean, we will help them along the way. All our efforts is in the valiant attempt to help SGX be more investor friendly and promote The Lion city to the rest of the world.

I do agree with the report that valuation is a bit stretched at $29. The latest result release shows revenue increase of only 10% if USD depreciation was taken into account although profit is good. I guess investors were focusing on the revenue and sold off the share today. Assuming moving on, its growth rate is 10%, then the PE and PEG is on the high side. But if one takes a longer term view and believes management continues to be able to execute well, then it will be able to do well in future.

However, I am in a dilemma whether to sell my remaining shares as we are already in a 10 year market cycle after the last recession. The next recession should be close.

The huge fluctuation of the share price has been puzzling, more than 35% lost in a month for a STI constituent. The short seller report lacks in substance vs other such report.

The trailing twelve months PE is now 13x and the returns looks binary in nature.

If PM is small in contribution or they received FDA approval in US, then Venture will certainly be worth a lot more from current price. If PM is indeed a huge part of Venture's sales and part of the IQO business has been lost to competitor, then we should see a sharp fall in profit in Q2.

Can't help but to wonder if insiders are actually involved in the share price fluctuation.

(03-05-2018, 07:57 PM)shadow_walker Wrote: The huge fluctuation of the share price has been puzzling, more than 35% lost in a month for a STI constituent. The short seller report lacks in substance vs other such report.

The trailing twelve months PE is now 13x and the returns looks binary in nature.

If PM is small in contribution or they received FDA approval in US, then Venture will certainly be worth a lot more from current price. If PM is indeed a huge part of Venture's sales and part of the IQO business has been lost to competitor, then we should see a sharp fall in profit in Q2.

Can't help but to wonder if insiders are actually involved in the share price fluctuation.

Investors dont like uncertainty. Seems they are pricing in zero or negative profit for 2018. I read up on IQOS approval pending in USA and have a gut feel FDA might not approve its sales in US.

CEO already mention they are not building "Mickey Mouse" stuff. They are making stuff which their customers are selling for millions $. So IQOS should not fall in that category. I have not seen CEO bought shares over 2 decades. He bought only once and quite a hefty ($5 mil or $3 mil cant remember) in 2017 at $15 plus a share. Seems he is very optimistic about Venture future growth prospects.

I will start to buy back those shares which I sold off if it falls to $17.

Vested.

There are mistakes in the latest report and logic is weak. This was a comment posted on the latest short seller report:

https://valiantvarriors.wixsite.com/home...le-it-goes

"Philip Morris only sold US$ 900 mn of iQOS device in 2017. The retail price is USD 90 in Japan. Philip Morris makes a good 40% gross margin on the device. Flextronics is the 2nd supplier from Q3 with 20% share, how can Venture sell so much iQOS device? Please do your homework.

https://www.pmi.com/investor-relations/o...Id=5267365
RRP net revenues reached $3.6 billion, or 12.7% of total net revenues, of which IQOS devices and accessories accounted for approximately $0.9 billion.

https://www.bloomberg.com/news/articles/...eless-race
Itou has been using a 9,980-yen ($89) IQOS device made by Philip Morris International that heats rather than burns tobacco

"With the dismal Q1 earnings, which fell 8 per cent, one can be sure that full year earnings would be down by at least 8 per cent, if not more. That would equate to full year earnings estimate of S$419 million."
This is a false statement! Venture profit was up 72% in Q1 2018. In fact, Q1 2018 profit is already higher than Q2 2017 profit level. By Q1 2018, Flextronics has already been a secondary supplier for 3 quarters. Yet Venture still show record Q1 profit, how do you explain?"

(04-05-2018, 09:11 AM)shadow_walker Wrote: "With the dismal Q1 earnings, which fell 8 per cent, one can be sure that full year earnings would be down by at least 8 per cent, if not more. That would equate to full year earnings estimate of S$419 million."
This is a false statement! Venture profit was up 72% in Q1 2018. In fact, Q1 2018 profit is already higher than Q2 2017 profit level. By Q1 2018, Flextronics has already been a secondary supplier for 3 quarters. Yet Venture still show record Q1 profit, how do you explain?"

I took a look. The 8% is probably their previous estimate of "miss earnings estimate by 8%". But using "fell 8 per cent" is definitely misleading (or false).

Venture corp bought back 109 lots worth S$2 mil. Not a good way to spend the money imo. Share price is not dirty cheap to buy back.

http://infopub.sgx.com/Apps?A=COW_CorpAn...364f57c2cb
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[url=http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&B=AnnouncementLast3MonthsSecurity&F=JQJAUBSKJZONLID5&H=6d88c36e07d875e9e9dccbcd5c554ae067709e4c07a591b270d637364f57c2cb]

I am not sure if these short sellers numbers are correct. Their arguments are all assumptions.
Even assuming their figures are spot on and Venture make 420 million dollars this year as per their forecast.
That is about $1.46 per share. They said that Venture should trade at 10 times forward earnings at most. Why only 10 times because a few others trade at 10 times ?
Different companies with different profit margins and with different moats may deserve a higher multiples
( or may not BECAUSE these are stocks trading in the stock markets and can trade at any multiples )
So who is to say that Venture cannot trade at 20 times or 30 times.
Stocks with poor balance sheets with no cash flows can have market value of $biliions.
And thousand of stocks worldwide with worse business than Venture trade at 20, 30, 40 times earnings.
I want to clarify that I am not arguing that Venture should trade at or deserve a higher valuations.
I am just saying that unless this company is a clear case of fraud or they practice false accounting they can and may still trade at multiples much higher than 10.
Maybe they are not old enough to remember what multiples Venture was trading at in 1999/2000 during the dot com era.
And yes if this is no bubble it can still trade at $29 on 20 times and if this is going to be another tech bubble you can argue that Venture can trade
to 50 times or more, IQOS or no IQOS.

There is definitely a trend for vaping that is building up. The market will probably be huge if it manages to stay under the radar.

FDA Threatens to Pull E-Cigarettes to Fight the Rise of Kids Vaping

The U.S. government signaled that it is prepared to adopt a tougher stance on electronic cigarettes in order to stem an epidemic of use by teens and children, after taking a more cautious approach last year.

https://www.bloomberg.com/news/articles/...uth-vaping