RHB Bank Singapore analyst Alfie Yeo has upgraded Venture Corporation V03 to “buy” from “neutral” with a higher target price of $16.50 from $14.20 previously.
“We think Venture Corp is seeing the tail-end of its customers’ destocking phase, and anticipate its recovery moving into FY2025,” Yeo writes in his July 25 report.
The analyst downgraded his rating on Feb 25 due to the continued customer destocking situation, but that is expected to ease in 2H2024.
Venture’s earnings for the 4QFY2023 ended Dec 31, 2023, and the 1QFY2024 were “dismal” due to weak customer orders stemming from destocking activities.
Customer destocking remained evident in the 1QFY2024 although they appeared to be tapered compared to the quarter before.
“[At the time], we continued to expect customer demand to remain subdued going into 1H2024, before a recovery takes place in 2H2024,” says Yeo.
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“Some of VMS’ peers have also experienced similar customer inventory situations earlier on – they were also optimistic on sequential improvement, with customers in certain sectors seeing inventory bottoming out,” he adds. “Hence, we expect improving customer orders as inventory levels in the supply chain ease going into 2H2024 and FY2025.”
To this end, Yeo has raised his earnings forecasts for FY2025 and FY2026 by 3%.
Before that, the analyst already priced in some form of recovery to take place. As a result, he now sees Venture’s earnings to grow by 5% to 7% for FY2025 to FY2026.
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He also sees a positive longer-term outlook for the stock, as he expects growth to be driven by new customers in the electronics manufacturing services (EMS), precision engineering and Ventech Group businesses. New businesses as well as Venture’s differentiating and high-value solutions are also catalysts to the group’s growth in the longer term.
“Venture’ peers currently trade at 17 times forward P/E, while its current mean P/E is at 16 times. Since we have turned more positive on Venture’s earnings prospects, we now peg our valuation at 16 times blended FY2024 – FY2025 P/E (from 14 times). This results in a higher target price of $16.50,” Yeo explains.
“The 16 times target P/E is also more in line with the peer average. The stock is trading at an attractive -1 standard deviation (s.d.) from the forward P/E mean,” he adds.
As at 9.44am, shares in Venture are trading 14 cents lower or 0.94% down at $14.76.
