Venture Corp’s revenue drops 3.7% to S$628.7m in 2Q11

Venture Corp reported 2Q11 revenue down 3.7% YoY to S$628.7m, mainly due to the impact of the weaker USD, which fell 11.0% YoY. However, revenue was +7.0% QoQ and 1.4% above our forecast. Net profit came in at S$42.0m, down 8.4% YoY and up 1.9% QoQ, and 2.1% ahead of our forecast due to lower-than-expected effective tax rate of 1.9%, versus 3% forecast. 1H11 revenue slipped 5.9% to S$1216.3m, meeting 42.3% of our full-year forecast, while net profit fell 2.5% to S$83.1m, or 39.6% of FY11 forecast. Though net cash balance eased to S$136.0m, versus S$254.9m as of end-Mar, it was due to the S$150.9m dividend payment or S$0.55/share for FY10.

Business segments still doing well in USD terms. If we strip out the impact of the weaker USD, its underlying business segments actually did pretty well; this also suggests that the manufacturing outlook is not overly gloomy. For example, its Networking & Communications revenue may have fallen 14.7% YoY and 3.6% QoQ to S$117.6m, but in USD terms, it was only down 4.2% YoY and 0.2% QoQ. Its star performer was Retail Stores Solutions & Industrial Products; +2.9% YoY and +14.0% QoQ to S$171.3m; also +15.6% YoY and +17.9% QoQ in USD terms. Test & Measurement/Medical/Others also put in a good quarter; +5.1% YoY and 5.0% QoQ to S$159.0m; +17.6% YoY and +7.0% QoQ in USD terms.

Cautiously upbeat outlook. Going forward, management notes that the general sentiment of its customers remains "encouraging" with most expecting business volume growth; not surprising given that 2H tends to be the stronger period for most manufacturing companies; but the strength of the pickup may be tempered by the weak economic situation in the US. In any case, VMS adds that it will continue to maintain a high degree of responsiveness to support all its customers' needs. However, it notes that the USD/SGD volatility will continue to have an impact on its business; but we have already factored in a continued weakening of the USD into our
estimates.

Keeping our BUY call. As such, we intend to leave our FY11 estimates unchanged. But due to the still muted market conditions, we are reducing fair value from S$10.59 to S$9.56, pegged to 12x blended FY11F/FY12F EPS, versus 14x FY11F EPS previously. Still, given the potential return of 32% from here, we maintain our BUY rating.