Ling Lee Keng of DBS Group Research has upgraded her call on Venture Corp from "hold" to "buy", after the stock suffered a "sharp" 25% drop since her previous call in May following weaker-than-expected 1QFY2023 numbers.
Besides the muted outlook, the weak share price performance was also affected by portfolio rebalancing from its removal from the MSCI Singapore Index which was effective from Aug 31 2023, she adds."We believe the sharp decline in share price is excessive," writes Ling in her Sept 11 note. "With valuations at trough level, we believe the upside risk outweighs the downside."
Ling points out that Venture is now trading at a FY2023 and FY2024 PE of 12.6x and 11.2x. In contrast, at the depth of the pandemic back in March 2020, it was trading at 12x. Her target price of $15.40 is pegged to 13.5x earnings.
"Venture’s current low valuation should not be ignored given its strong financials, above-peers net margins and high net cash position," reasons Ling, referring to the company's net cash of $896 million, or $3.08 per share, equivalent to nearly a quarter of Venture's current market value.
With no debt, this cash hoard should help the company maintain its 75-cent dividend payout for the current FY2023, which works out to an attractive yield of around 6%. "A strong war chest also enables the group to capture new opportunities for its next growth phase," she adds, referring to areas such as life sciences, medical and healthcare.
Ling, however, cautions that Venture's 2HFY2023 earnings will likely be muted given the still weak outlook for downstream players. Ling projects Venture's earnings to drop 20% y-o-y for FY2023 before recovering by 12% in the coming FY2024.
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Nonetheless, there are risks, such as weaker demand from clients because of a persistent global economic slowdown. Additional volatility of the US dollar could impact revenue growth as well.
Venture Corp shares gained 2.93% to trade at $13.01 as at 4.17pm.
