CGS International analyst William Tng is keeping his “add” call and target price of $15.93 unchanged on Venture Corporation V03 as the company guided for its 2QFY2024 revenue to improve q-o-q and 2HFY2024 revenue to improve h-o-h.
Tng writes in his June 20 report: “Venture also commented in its 1QFY2024 business update that it is onboarding new customers in electronics manufacturing service (EMS++), precision engineering and ventech group businesses, including customers in the medtech and lifestyle sectors, as well as promising technology domains.”
Additionally, Tng notes that based on customers’ feedback, the company also sees demand strengthening in several technology domains for the rest of FY2024.
He continues: “In its 1QFY2024 business update meeting, Venture also commented that its new Batu Kawan facility could add an additional 10% to the group’s total floor area and that the company is exploring with customers to gradually commence production at this new factory.”
Meanwhile, customer concentration risk has increased for Venture, as Tng points out that Venture has two major customers each accounting for more than 10% of revenue in FY2023 versus one such customer in FY2022.
The analyst adds that the rise of artificial intelligence (AI) data centres will lead to a demand for networking-related components and modules used in data centres, which “could benefit” Venture, as the company supplies such components to American semicon players Broadcom, Marvell Technology and Lumentum Holdings.
Overall, Tng expects to see a resumption in earnings per share (EPS) growth in the FY2024 to FY2026 as customers orders increase. The analyst also sees share price support from its 5.40% dividend yield over the same period.
Tng’s unchanged target price is still based on 14.6 times Venture’s expected FY2025 P/E, or at its 15-year average.
Re-rating catalysts noted by him include new product launches by customers and better-than-expected revenue opportunities over FY2024 to FY2026 as further business opportunities arise from companies keen to diversify their production orders from China to Malaysia.
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Conversely, key downside risks include potential supply chain disruptions affecting the availability of parts and components, labour shortages potentially lowering its production output and a worsening global economic outlook potentially further reducing orders from customers.
As at 11.40am, shares in Venture Corporation are trading 11 cents higher or 0.79% up at $14.11.
