Venture Corp second-half recovery vulnerable to lingering customer caution

Revenues likely to be weaker than expected.

OCBC Investment Research noted that Venture Corporation's customers are still holding back on their purchases as macroeconomic conditions continue to remain uncertain.

A silver lining though is that when the economy does pick up, it is well-positioned to take advantage because of its focus on offering stronger design and engineering services than its competitors.

Here's more from OCBC:

Cautious sentiment still prevalent among customers. Our recent conversation with Venture Corp (VMS) highlighted that sentiment among its customers has largely remained cautious given the still uncertain macroeconomic conditions. This is in line with the World Bank’s revised growth forecasts for the global economy, with global real GDP projections trimmed by 0.2ppt and 0.1ppt to 2.2% and 3.0% for 2013 and 2014, respectively. Manufacturing data emanating from China has also illustrated sluggishness, with the latest China HSBC Manufacturing June PMI flash estimate falling to a nine-month low of 48.3. Singapore’s electronics NODX also disappointed, slipping 13.2% YoY in May, representing a tenth consecutive month of YoY decline and was below the street’s 10.5% median forecast.

Lowering estimates as a prudent measure. We now expect VMS’s 2H13 recovery strength to be weaker than our previous expectations in light of the aforementioned factors. Hence, we see the need to pare our FY13/14F revenue forecasts by 5.4/1.6%, even as we take into account the recent appreciation of the USD vis-à-vis the SGD. Our FY13/14F PATMI estimates are lowered by 7.8/6.6%, respectively.

Waiting for a firmer economic rebound. VMS’s strategy in current uncertain times is to continue its acquisition drive for new customers and improve its product and service quality as a means of differentiating itself from its competitors. This also involves a targeted approach to increasing its market share with existing customers given its strong design and engineering capabilities. This would position the group for a future uplift in orders when the economic environment improves on a firmer footing, in our view. Although VMS’s share price has dipped 11.5% since its disappointing 1Q13 results, we prefer to wait for clearer signs of a rebound in the global economic conditions before turning more positive on the stock. Maintain HOLD with a lower fair value estimate of S$7.37 (previously S$8.00) as a result of our reduced forecasts.