Excerpts from CGS International report

• We provide an update on Venture Corporation.
• In its 1Q24 business update, Venture guided that 2Q24F/2H24F revenue is expected to be stronger qoq and hoh.

We reiterate Add as we expect Venture to see a resumption in EPS growth in FY24-26F, supported by its 5.40% dividend yield (over FY24-26F).

Targeting stronger 2Q24F and 2H24F

In its 1Q24 business update, Venture Corporation guided that it is targeting for 2Q24F revenue to improve qoq and 2H24F revenue to be stronger hoh.

Venture also commented in its 1Q24 business update that it is onboarding new customers in the EMS++, Precision Engineering and Ventech Group businesses, including customers in the medtech and lifestyle sectors, as well as promising technology domains.

Based on customers’ feedback, Venture also sees demand strengthening in several technology domains for the rest of 2024F.

In its 1Q24 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.

Customer concentration increased in FY23

Based on its 2023 annual report, we note that customer concentration risk has increased for Venture. According to the report, Venture has 2 major customers that each accounted for more than 10% of revenue in 2023 versus one such customer in 2022.

Some indirect benefit from the Artificial Intelligence (AI) trend

With more AI centric data centres, the demand for networking related components/modules used in such data centres will increase, in our view.

This could benefit Venture which supplies components/modules to Broadcom Inc (AVGO US, NR, CP:US$1802.52), Marvell Technology Inc (MRVL US, NR, CP:US$73.14) and Lumentum Holdings Inc (LITE US, NR, CP:US$49.58).

Valuation/Recommendation

We reiterate our Add call on Venture Corporation as we expect it to see a resumption in EPS growth in FY24-26F (as customers’ orders pick up) and share price support from its 5.40% dividend yield (over FY24-26F).

We retain our valuation basis of 14.6x FY25F P/E (15-year average) and TP of S$15.93.

Re-rating catalysts: new product launches by customers and better than-expected revenue opportunities over FY24-26F as further business opportunities arise from companies keen to diversify their production orders from China to Malaysia.

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

Venture Corporation share price chartYou can find the full report here and the company website here.