Venture Corp might report a 6.9% y-o-y drop in earnings for the seasonally weak 1QFY2023 ended March, but CGS-CIMB’s William Tng has kept his “add” call and $20.10 target price on the blue-chip contract manufacturer.
Tng’s target price is pegged to a 22-year average forward P/E of 15.2x of his FY2024 earnings estimate, and his relatively positive view is premised on how the company is still able to chalk up earnings growth while giving shareholders a dividend yield of 4.22%.
Citing the company’s recently published annual report for FY2022, Tng notes that Venture has been lauded by a key customer, Phillip Morris International, with two awards.
In addition, Tng, citing Venture’s annual report, notes that the company is seeing “strong tailwinds” in new growth sectors ranging from the electric vehicle ecosystem, renewable energy infrastructure, and industrial Internet-of-Things, 5G and cloud computing.
Venture has also flagged an emerging “longevity industry”, that has led to the development of an interdisciplinary ecosystem including wearables and robotics, lifestyle consumer tech and AI-based diagnostics which represents exciting growth opportunities.
There’s also the existing life sciences and genomics technology domain. Since 2013, Venture has built up significant product knowledge to support the manufacturing of specialised equipment used in liquid chromatography, mass spectrometry and spatial transcriptomics.
According to Ting, these instruments are used widely in food and water quality testing, research on infectious diseases as well as the development of medical drugs.
Operationally, the company is on track to complete the construction of a new 442,000 sq ft manufacturing facility in Penang by end of the current FY2023.
The way Tng sees it, potential rerating catalysts include new product launches by customers and improvements in component availability.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
On the other hand, key downside risks for Venture includes the ongoing supply chain disruptions, which affect the viability of parts and components; labour shortages, which could potentially lower its production output, and last but not least, weakening global economic outlook, which could potentially reduce orders from customers.
As at 2.46 pm, Venture Corp shares changed hands at $17.54, down 1.41%.
