Venture Corp

[mulyc]

Would Venture be a good way to participate in the global 3D-printing euphoria?
_____________________________________________________

Maintain BUY and TP of SGD8.70. Our recent NDR gave clients valuable insights into its new 3D printing segment.

Impact may not show up immediately but can become meaningful beyond 2014 with players striving to broaden market and lower price points.

The life sciences segment is another potential growth driver with many interesting opportunities for Venture.

3D printing in the limelight
We took Venture on an NDR in Singapore last week to give clients a chance to hear from the company on its new 3D printing business. The industry is still fluid, but recent developments lead us to believe that demand is likely to grow faster going forward given the push by industry players into new market segments for 3D printing.

How much could 3D printers contribute?
Our best guess is for low-single-digit revenue contribution in FY14 and a more substantial high-single, if not double-digit contribution in FY15.

Other major points
Resiliency built into business. Venture has pared down its volatile consumer businesses. No one customer now accounts for more than 15% of its total revenue in any one period.
Impact of customer-related M&A tapering off. Following substantial disruption in 2010-2012, M&A activities among its customer base are petering out and only their residual effects will remain in FY14, in our view.
Stage set for better growth, with Life Sciences another potential growth driver. Other than 3D printers, the life sciences business is also set to grow faster.
Source: Maybank Research - 22 Jan 2014

[Greenrookie]

Hi buddies,

I am looking at venture corp. I am aware that it's earning is going down for the past few years to the extend 2013 payout of 50 cents is higher than earnings.

I am trying to answer one question when I take a quick look at the ARs and numbers. Is venture going to recover or is it losing its competitive edge.

If what I am reading is correct, there is some focus on ODM and away from OEM, I am not sure while the direction is correct for "stickiness of customers", is it used as a convent cover for some segment like that print and imaging. Apparently the move up the value chain result in significant fall in revenue than cannot be offset by the meagre margins.

Also, as I read, venture seem able to annually introduce new products or boast new competencies. They mention they are able to gain new customers almost every year, and mention they gain market shares rather frequently.

So, if the capabilities sound and the diversification of products recurring, should it not recover with the wider electronics pick - up? If we believe venture is able to recover, current valuation using their yield, and prospective PE does not seem demanding.

Anyone has any views? I am not too comfortable of just looking at margins and conclude competition is killing venture, is there anyway to know Venture major customers for each segment? Are they growing when venture is dwindling?

[kayhian]

Venture Corp: A golden goose for dividends

Venture Corp (VMS) managed to deliver continued sequential improvement in its quarterly results for FY13. We believe this reflects the recovery momentum of the global economy and consequently VMS’s operations, although FY13 revenue and PATMI still came in 2.4% and 6.1% lower than FY12, respectively. Given VMS’s strong balance sheet and our free cashflows/share forecast, we believe its FY13 S$0.50 DPS remains a sustainable baseline scenario. Looking ahead, although we continue to expect FY14 to be a recovery year for VMS, we conservatively trim our revenue forecast by 3.7% as there are still pockets of uncertainty in the global economy. Coupled with a higher effective tax rate assumption, our FY14 PATMI projection is lowered by 6.0%. Maintain BUY on VMS, albeit with a reduced fair value estimate of S$7.98 (previously S$8.50), pegged to 15x FY14F EPS. (Wong Teck Ching Andy)

[Greenrookie]

Any buddies can tell me who are venture closest competitors ? AM tech?i see venture derive the main bulk of earning from Singapore and Asia pacific, anyone know who are its customers??

[AlphaQuant]

Anyone has any views? I am not too comfortable of just looking at margins and conclude competition is killing venture, is there anyway to know Venture major customers for each segment? Are they growing when venture is dwindling?

I did some research on Venture a long while back, so let me summarise my thoughts.

Globalisation has a massive effect on the industry - and there's a very good reason why the term "supply-chain" came up. Basically suppliers are now part of a chain with globalisation of labor+cheapening of freight. In the past suppliers manufacture and ship whatever they please, retailers stock and then sell; now retailers with Just-In-Time systems demand suppliers to cope with whatever spikes and troughs in the retail demand. It's cheap to do the actual manufacturing and the value now resides in the creation (aka Apple) and the retail churn.

Venture does not compete in the sweatshop category (e.g. Foxconn etc) - it tries to move up the valuechain by doing research/bespoke/niche stuff - which is reflected in their NPM of 7-8% in the mid 2000s and the 5-6% in the post 2010s.

So is this NPM good enough? Well i think all it reflects is the reality of the market - sweatshops get 1-2%, guys like Venture used to get 7-8% and now 5-6% and retailers like Challenger get 5-6% for the whole electronic/electrical industry. Unless the RMB strengths by 30% and the SGD stops appreciating 15% in 5 yrs, you prob see the cost structure of the industry remaining this way. If you don't like it, then the simple thing to do is to choose another industry and not another company within the same industry.

Venture does not have one particular client, i believe. If you read their AR segmental results, i think there's just one bloke with >10% of revenues (I think this is HP or its spinoff Agilent).

[Some-one]

Hi buddies,

I am looking at venture corp. I am aware that it's earning is going down for the past few years to the extend 2013 payout of 50 cents is higher than earnings.

I am trying to answer one question when I take a quick look at the ARs and numbers. Is venture going to recover or is it losing its competitive edge.

If what I am reading is correct, there is some focus on ODM and away from OEM, I am not sure while the direction is correct for "stickiness of customers", is it used as a convent cover for some segment like that print and imaging. Apparently the move up the value chain result in significant fall in revenue than cannot be offset by the meagre margins.

Also, as I read, venture seem able to annually introduce new products or boast new competencies. They mention they are able to gain new customers almost every year, and mention they gain market shares rather frequently.

So, if the capabilities sound and the diversification of products recurring, should it not recover with the wider electronics pick - up? If we believe venture is able to recover, current valuation using their yield, and prospective PE does not seem demanding.

Anyone has any views? I am not too comfortable of just looking at margins and conclude competition is killing venture, is there anyway to know Venture major customers for each segment? Are they growing when venture is dwindling?

I have been looking at Venture for a pretty long time. I do not really believe in what analysts claim that it would recover as written below. There are two things which I am especially uncomfortable with.

1. Aberdeen has been selling their shares in Venture
2. Succession planning in the company

You are right. Their Dividend Payout Ratio has exceeded 1 and this means that they do not have any retained earnings. How are they going to expand? I know about their 3D printing techniques but it does not look like it would help them recover any time.

It's a sell to me.

Venture Corp: A golden goose for dividends

Venture Corp (VMS) managed to deliver continued sequential improvement in its quarterly results for FY13. We believe this reflects the recovery momentum of the global economy and consequently VMS’s operations, although FY13 revenue and PATMI still came in 2.4% and 6.1% lower than FY12, respectively. Given VMS’s strong balance sheet and our free cashflows/share forecast, we believe its FY13 S$0.50 DPS remains a sustainable baseline scenario. Looking ahead, although we continue to expect FY14 to be a recovery year for VMS, we conservatively trim our revenue forecast by 3.7% as there are still pockets of uncertainty in the global economy. Coupled with a higher effective tax rate assumption, our FY14 PATMI projection is lowered by 6.0%. Maintain BUY on VMS, albeit with a reduced fair value estimate of S$7.98 (previously S$8.50), pegged to 15x FY14F EPS. (Wong Teck Ching Andy)

[Greenrookie]

Hi Someone and Alphaquant,

Thank you for your comments. I am not really convinced by the bullish report too, since the main agreement is the sequential quarters improvement in 2013. I saw that report before, if I am not wrong, it is issued in 1H, and venture has delivered further 2 quarters of better growth,but 2H is traditional a better half, as conceded by the chairman.

I notice that the bulk(almost all) of revenue is generated in asia-pacific including singapore. It seem to means Venture is supporting the back-end suppliers of consumer/industrial products rather than consumer/industrial products producers themselves.

Anyway, I am not looking Venture as a grower, but rather as a cyclical recovery play.

Looking at the results, it is the worst in 13 years! Reading the AR over the years( I only managed to read backwards till 2009), its capabilities and competencies seem rather intact. Margin as Alphaquant point out is between 5-6%, not actually razor thin consider the costs pressures and the industry it is in. Most of the time, they do seem to deliver what they set to do, e.g. 2009-2010, they mention about developmental project on retail solutions, pay system, and in 2012-2013, they did roll out the POS products and the revenue did improve. Of course, there are misses too, like they mention they make inroads into aerospace with an european company, but never heard of it since.

Net net, it does not seem to be a dying company struggling/or managing decline. Hence the important question, is there anyway to track the customers, although most might be project based, and is Venture able to gain market shares as Asia tech export improve?

AS for Aberdeen selling, I am not too concerned, they have been buying and selling at various time, in 2011 and 2012, they are net buyers, in recent time, they are net sellers, but they are not dumping their shares.

As for renewal, they did expect their team in 2011-2012,but they are in the very late 50s too, and is not tested. so yea, a bit of concern there.

Comments welcome.

[Some-one]

Hi Someone and Alphaquant,

Thank you for your comments. I am not really convinced by the bullish report too, since the main agreement is the sequential quarters improvement in 2013. I saw that report before, if I am not wrong, it is issued in 1H, and venture has delivered further 2 quarters of better growth,but 2H is traditional a better half, as conceded by the chairman.

I notice that the bulk(almost all) of revenue is generated in asia-pacific including singapore. It seem to means Venture is supporting the back-end suppliers of consumer/industrial products rather than consumer/industrial products producers themselves.

Anyway, I am not looking Venture as a grower, but rather as a cyclical recovery play.

Looking at the results, it is the worst in 13 years! Reading the AR over the years( I only managed to read backwards till 2009), its capabilities and competencies seem rather intact. Margin as Alphaquant point out is between 5-6%, not actually razor thin consider the costs pressures and the industry it is in. Most of the time, they do seem to deliver what they set to do, e.g. 2009-2010, they mention about developmental project on retail solutions, pay system, and in 2012-2013, they did roll out the POS products and the revenue did improve. Of course, there are misses too, like they mention they make inroads into aerospace with an european company, but never heard of it since.

Net net, it does not seem to be a dying company struggling/or managing decline. Hence the important question, is there anyway to track the customers, although most might be project based, and is Venture able to gain market shares as Asia tech export improve?

AS for Aberdeen selling, I am not too concerned, they have been buying and selling at various time, in 2011 and 2012, they are net buyers, in recent time, they are net sellers, but they are not dumping their shares.

As for renewal, they did expect their team in 2011-2012,but they are in the very late 50s too, and is not tested. so yea, a bit of concern there.

Comments welcome.

I have been to their AGM over the years including one where Aberdeen (a Caucasian is representing it) has a clash with the minority shareholders over the voting system.

They have been saying that they are trying to maintain a margin of more than 6% but their NPM is slightly below it. They does not seem to have any more ways to deliver better performance. My guess is that the Chairman and CEO, Mr. Wong, does not have a better idea in improving the business and basically uses its dividends to attract shareholders.

Yes. A lot of the shareholders are very happy over the huge dividends but I have doubts over the company been able to sustain it in the future. They just cut their dividends from 0.55 to 0.50. At the current price of 7.4, it is less than 7 if you minus away the 0.5 dividend and I believe after xD, it would probably fall to 6.8.

As for recovery play, I really don't see how they can recover. Are we saying that electronics export has been in a slump from 2010 to 2013? I thought we should be recovering from 2010 to 2013 since the GFC happens around 2009 to 2010.

There are two ways which I think the company can improve.

1. Change the CEO. I spoke to Mr. Wong before and to me, he does not seem to have the passion to explore new business opportunities and prefer status quo.
2. Find new businesses instead of staying in electronics. Margin would be depressed even more when companies in China took away Venture's market shares with cheaper labour.

Furthermore, since they do not have any retained earnings, they would not be able to acquire other businesses to expand its products. They have to depend on their customers and their own workforce to come out with new products. However, it seems there are no game-changer any time soon.

[Greenrookie]

Some-one,

I think electronics export from Singapore can hardly be called strong. Pic taken from IE singapore.

Anyway to share some numbers, and hope to get more discussion,so that I know what to look for in further research. Thanks. Anyone knows where to find data of asia-pacific electronics export??

[Image: 1elec.png]
[Image: 2electr.png]
[Image: venture-corp.png]
[Image: v2.png]

[gautam]

Hi someone, greenrookie and alphaquant,

Here's my take on venture corp,

I must qualify that I did not do great in dept analysis.

i look at its dividends. To me dividends are a form of direct connection from the company funds to the our bank accounts, and this represent cold hard cash, a truth which no other research can do to surpass.

Looking at venture corp, its dividends are sort of flat for nearly 10 years now. Now 10 year or a decade is not a short time. For most companies even those which are cyclical in nature, we should be able to see the long term tren. Since 2005, it has a paid out quite consistently 50c per year. Now, nearly a decade is not a short period of time. For the dividends to be flat says a story of a few possibilities
1) either the earnings are NOT increasing, or
2) 1) is happening, yet the company is unwilling to give back the excess to the shareholders.

Whether 1 or 2 is the truth, this is not attractive, because if 1) is the truth, means the company is probably not growing and if this were true, mean the share price would be rather flat (we can go to google finance and see the stock chart and it looks so to me) if 2) were the truth, means the boss and controlling stakeholders are laughing the way to the bank at the expense of the small shareholders, and such a company, to me , is not small shareholder friendly.

In addition, I don't think this company is undervalued as it is slightly above book. However, I am not sure if it has any hidden gems to unlock.

PE is so so.

So looking at the past 10 year history, one should as himself the question seriously whether he can confidently think the company would be able to make a difference in the next 10 years, such that the earnings and hence dividends would show an impactable increase, before putting a dollar there.

These are questions I ask myself before investing in any companies.

To me, I am not confident to make that conviction as I have not seen that happened in the past 10 years for venture corp. So I stay clear.

Hope this helps,

Gautam