Venture Corporation could bank on medical devices and life science segments to drive growth in H2

Its customer Illumina is expected to grow 6%, albeit at a lower rate compared to its previous estimate of 13-14%.

Venture Corporation’s test & measurement, medical devices, and life science segments are expected to drive the firm’s next growth phase in H2, according to a report by DBS Equity Research.

According to DBS’ analyst Lee Keng Ling, Venture’s strategy in this space is to forge strategic partnerships with its customers to collaborate on the development of their new product offerings and replacement product launches.

“One example is the collaboration with a leading laboratory analytical instrument company, which is a long-term partner in the liquid chromatography domain. Leveraging on this long-term partnership, Venture has expanded into manufacturing their next-generation mass spectrometry instruments,” he explained. “Going forward, Venture can continue to leverage on its strong relationships with key customers to target opportunities in other new ecosystems.”

Also read: Can Venture Corporation recover and regain investor confidence?

Whilst the cluster is still said to be at a nascent stage of development, the global genomics market is projected to reach US$35.7b by 2024 from US$18.9b in 2019, at a compound annual growth rate (CAGR) of 13.5%, according to DBS’ market research. Factors such as the rising government funding and growth in the number of genomics projects, decreasing sequencing costs, growing application areas of genomics, and the entry of new players and start-ups in the genomics field are driving the growth of the genomics market.

In Q2 19, revenue for the life sciences and applied markets division was down 1% YoY whilst that for the diagnostics and genomics segment grew 5% YoY.

The report also noted that key players in the test & measurement, medical devices and life science segments, including Agilent, Illumina, PerkinElmer and Thermo Fisher, are expected to do well.

Analytical laboratory instrument manufacturing firm Agilent is reportedly guiding for single-digit growth in FY October 2019. Thermo Fisher and PerkinElmer, both in the analytical and life sciences space, also expect forward earnings growth of 10-20% based on consensus estimates, whilst Waters Corporation, an analytical instrument manufacturer, is forecasted to deliver single-digit topline growth but its earnings are expected to ease slightly in the next one to two years.

Also read: Venture Corporation profits grew 8.6% to $90.87m in Q1

“Genome sequencing firm Illumina is still expected to register topline growth of 6%, albeit at a lower rate, versus its previous estimate of 13-14%,” Ling said. This sentiment was echoed by a separate report by CGS-CIMB, which noted that Illumina’s cut reflects non–instrument related factors and a delay in a program with a partner that is now expected to ramp in 2020.

“Illumina expects NovaSeq system shipments which is of relevance to Venture, to be flat to slightly up compared to FY 2018. Illumina’s products are supposedly more resilient given that they are not discretionary consumer electronics items. We think the lowering of guidance by Illumina is proof that the uncertainties and cautiousness caused by US-China tensions are affecting end-demand,” CGS-CIMB’s analyst William Tng said.

Ling also added that some of the group’s customers are preferring to stay on the sidelines before launching their new products whilst older ones are already being phased out amidst the ongoing trade war.

“Thus, the gap has widened during the product transition period. This might introduce near-term volatility to the group’s performance, but the impact is expected to be partly mitigated by customers’ successful new product launches in H2 2019,” he said, adding that contributions from new customers secured in the past years are also expected to grow, as compared to the previous year.