Maybank KE downgrades Venture to 'hold'; recommends lower entry point

SINGAPORE (Nov 12): Maybank Kim Eng is downgrading its call on Venture Corporation to “hold” from “buy” previously to reflect to more challenging times. The research house has also cut its target price on Venture to $16.91 from $18.85 previously.

Investors are also recommended to take profit and await a materially lower entry point, assuming fundamentals do not deteriorate further.

This was despite the group reporting a 5.5% increase in its 3Q19 earnings to $85.2 million from $80.8 million in 3Q18. This is in line with a 12.8% y-o-y increase in revenue to $869.1 million.

The group has attributed revenue growth to its position to capture growth despite geopolitical tensions such as US China trade war, Brexit and currency volatility causing headwinds. This growth has been captured from “selected ecosystems through its differentiated value creation pathways,” the company says in a Nov 8 filing.

See: Venture posts 5.5% increase in 3Q earnings to $85.2 mil on higher revenue

Despite a mildly positive 3Q19 earning results, analyst Gene Lih Lai believes that Venture’s earnings performance in the next two quarters may be lacklustre due to high-base consideration; and earnings recovery could take longer than expected.

Over the next 12 months, the group believes that some uncertainties in the business and geopolitical environment may remain unabated.

In a Monday report, Lai says, “As the capex environment remains weak, new products may receive lacklustre end-market take-up, or their introduction may even be delayed. Collectively, these may slow the pace of an earnings recovery.”

Nonetheless, Venture continues to execute well on its controllable factors, such as deepening engagement with existing customers; winning new customers; and rendering support to customers who are shifting supply chains out of China to avoid tariffs.

Cumulatively, these should aid growth when the operating environment recovers. But near-term share price performance may be pressured as the analyst sees risks to consensus earnings estimates.

As at 11.55am, shares in Venture are trading 1.4% lower at $15.41 or 1.9 times FY19 book with a dividend yield of 4.2%.