CGS-CIMB Research analysts William Tng and Izabella Tan have maintained their “add” call on Venture Corp as they see the company as being “capable of weathering a slowdown”.
In their report dated Jan 6, Tng and Tan note that the slowing economic growth in the US remains the key macro risk for Venture, “but a strong balance sheet will help the company manage a slowdown, in our view,” Tng and Tan says.
Elaborating, the analysts note that according to US non-profit think tank The Conference Board, the US economy could head into a recession around the beginning of 2023.
The Conference Board expects to see three quarters of negative GDP growth for the US starting from the first quarter of 2023, with a rebound in the fourth quarter of 2023.
This will bring real GDP growth in 2023 to 0% y-o-y, compared to an expected 1.9% growth for 2022. The rebound will also continue to reach 1.7% in 2024.
For Venture, slowing US economic growth is a concern as the company does have a large US customer base.
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However, as Venture is in a net cash position of $701 million with no debt as at Sept 30, 2022, the analysts say this will help the company manage any slowdown. The company’s net cash position will also allow Venture to seize any opportunities presented by an economic slowdown.
Further to their report, the analysts are estimating that Venture will report a 4QFY2022 net profit of $89.7 million, which is 5% lower y-o-y and 8% lower q-o-q. Venture’s 4QFY2022 and FY2022 ends on Dec 31, 2022.
The analysts’ projections are more “cautious” than the street’s expectations of $95.4 million in net profit for the same period, up by 1% y-o-y but down by 2% on a q-o-q basis.
“Low expectations [will] mitigate downside risks,” they write.
The street is also expecting Venture to post a y-o-y revenue growth of 3.9% to 4.8% for FY2023 to FY2024, compared to CGS-CIMB’s 2.5% to 3.3% growth estimate.
As the analysts roll their valuation over to FY2024, their target price estimate rises to $20.10, up from $19.62 before. The new target price is based on an unchanged 22-year average forward P/E of 15.2x.
To them, key downside risks for Venture are the ongoing supply chain disruptions, which affect the availability of parts and components, labour shortages, and weakening global economic outlook.
On the other hand, some potential re-rating catalysts are new product launches by customers, and improvements in component availability.
As at 12.55 pm, shares of Venture traded at $17.26, with a FY2022 P/B of 1.72x and dividend yield of 4.44%.
