Can Venture Corporation recover and regain investor confidence?

Its major customers, Illumina and Philip Morris, guided for growth in 2019 but trade war risks remain.

In order to regain the confidence of investors, Venture Corporation must take on a “V-shaped recovery” for Q4 2018, CGS-CIMB said. An analysis set a Q4 net profit forecast of $100.7m (24.6% QoQ but -29.6% YoY) that the company could either shatter or disappoint during its results day, 22 February 2019.

One of Venture Corporation’s profit streams come from life sciences firm Illumina, which is believed to be one of its major customers. However, CGS-CIMB noted that the company still has a long way to go. Illumina guided for revenue to be lower QoQ but sees FY2019 revenue growth at 13-14% YoY.

“The disappointment in Illumina’s FY2018 results was the miss in equipment shipments,” said CGS-CIMB analyst William Tng. “Sequencing systems sales in FY2018 were around 315 units (guidance: 330 units). Illumina, however, expects the multi-year upgrade cycle to remain intact as it estimates that at least 75% of its customer base has yet to switch to the current leading product.”

Another customer, Philip Morris, beat Wall Street estimates. It did not guide for FY2019 heated tobacco units volume, but it reiterated its previous guidance of 90 billion to 100 billion unit shipments by FY2020.

Tng noted that over the next two years, key focus will remain on IQOS. “As at end-Q4 2018, Philip Morris noted that one-third of its IQOS user base was in markets outside of Asia (progress was made in the EU region and Russia),” he added.

Also read: Should Venture worry about a third IQOS manufacturer for Philip Morris?

Other possible growth drivers for Venture’s profits include the moves of Altria Group, owner of Philip Morris’ US business, to build brick-and-mortar stores in multiple US locations and hire personnel to support pre-launch activities for IQOS.

“Altria is hopeful that IQOS will be approved soon for sale in the US and has included its full roll out in its guidance. Interestingly, looking into the future, Philip Morris believes that it will eventually introduce a device that can be used with different consumables such as e-vapour, heated and even nicotine,” Tng said.

A key risk to all of these, however, is the US-China trade war which could slow down orders from customers, the analyst concluded.