Citi Investment Research analyst Jame Osman has maintained his “buy” call on Venture Corp V03 with a lower target price of $19 from $20.30 previously on the back of near-term concerns.
In his June 14 report, Osman expects Venture’s top-line momentum to remain subdued in the near-term as customers remain cautious on order volume due to the uncertain consumption environment and inventory destocking from elevated FY2022 levels.
That said, he sees the about 13% pullback in Venture’s shares over the past three months as overdone an enhanced opportunity to accumulate. This is as market concern over the near-term demand uncertainty appears to be priced in. Additionally, Venture’s 1QFY2023 ended March performance was comparatively better among the tech companies in Citi’s coverage.
Moving forward, Venture has flagged potential new product introductions as potential drivers in its 2HFY2023 while it focuses on efforts to capture market share after deepening relationships with customers within its key growth domains. Osman sees Venture’s growing net cash position as attractive to customers seeking implicit working capital support.
“Following its efforts to penetrate new domains, we believe Venture’s customer base is now more diversified versus a decade ago and should mitigate risk of a prolonged revenue slowdown,” says Osman.
In the medium-term, the analyst sees structural opportunities for the company from supply chain relocation into manufacturing hubs including Penang. Customers could also increasingly turn to electronic manufacturing services players which have been able to navigate supply chain bottlenecks well during the pandemic to de-risk their own production over the long-term.
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Osman also views Venture’s recent management restructuring plans as a net positive. Effective June 1, the group is reorganising to form two technology business groups known as Technology Products and Solutions group and Advanced Manufacturing and Design Solutions group, each led by different CEOs.
After tampering its revenue forecasts and margin assumptions to reflect near-term operational deleveraging, Citi has lowered its FY2023, FY2024 and FY2025 EPS estimates by 7%, 5% and 4% respectively. Osman notes that Venture’s valuations appear attractive as the shares are trading at a FY2023 P/E of 10x on an ex-cash basis, which is 1 standard deviation below its past 10-year mean of 15x.
As at 11.42am, shares in Venture are trading 66 cents higher or 4.35% up at $15.85.
