On 4 November 2022, Venture Corporation Limited (“Venture”) have announced their third quarter business updates. They have continued to deliver a strong set of results, and I liked that they have no borrowings, which means the Group does not need to be concerned of the rising interest rates.
Their dividends can also be fully supported by their earnings per share without the need to adjust for depreciation nor amortization, indicating that it is sustainable over a long term.
Website: General Announcement::3Q 2022 Executive Summary And General Comments
Background
Venture was formed in 1989 as an electronic services provider after the merger of three companies. Today, Venture is a leading global provider of technology services, products and solutions with established capabilities spanning marketing research, design and development, product and process engineering, design for manufacturability, supply chain management, as well as product refurbishment and technical support across a widely diversified range of high-mix, high-value and complex products.
Venture has built know-how and intellectual property with expertise in several technology domains. These include life science, genomics, molecular diagnostics, medical devices and equipment, healthcare and wellness technology, lifestyle consumer technology, health improvement products, instrumentation, test and measurement technology, networking and communications, fintech, as well as computing, printing and imaging technology. The Group manages a portfolio of more than 5,000 products and solutions and continues to expand into new technology domains through its collaborations with customers and partners in selected ecosystems of interests.
In its pursuit to create unparalleled enterprise excellence across design and engineering, manufacturing and distribution, Venture has forged numerous meaningful partnerships and alliances. As it assumes a key role in the enterprise chain, Venture will continue to tap the knowledge and best-in-class capabilities of global enterprises for breakthrough innovations.
Headquartered in Singapore, the Group comprises more than 30 companies with global clusters in Southeast Asia, Northeast Asia, America and Europe and employs over 12,000 people worldwide.
VIPColor Technologies Pte Ltd (www.vipcolor.com) and Advanced Products Corporation Pte Ltd (www.apc-vest.com) are wholly-owned subsidiaries of the Venture Group. They provide industry leading solutions for on-demand color label printing and embedded systems respectively.
Financial highlights
Revenue
Based on the 2022Q3 results released on 4 November 2022, it was noted the revenue increased by 32.8% to SGD2,818 million for the 9 months from SGD2,202 million 2021Q3. For reference, when extrapolated to the full year, their expected FY2022 revenue increased by 21.0% as compared to the full financial year FY2021 and is higher than their revenue average since FY2017. The increase was on the back of broad-based demand across the Group’s diversified portfolio.
The metrics as of 30 September 2022 is Favorable.
Earnings per share
It was noted for 2022Q3, net profit for the 9 months increased by 24.9% to SGD271 million compared to SGD217 million in 2021Q3. When extrapolated to the full financial year, net profit for FY2022 is expected to increase by 9.6%. This was in line with the increase in revenue, offset by increases in taxes.
Accordingly, earnings per share will also increased by 25.1% for 2022Q3, and when extrapolated is expected to increase by 15.6%.
The metrics as of 30 September 2022 is Favorable.
Operating Cash Flows
Based on the announcement on 4 November 2022, cash flow was not included in the business update for the third quarter of 2022.
Cash flows from operations for 2022Q2 have decreased by 65.3% to SGD47 million compared to SGD137 million for the 6 months ending 2021Q2. When extrapolated and compared to FY2021, cash flows from operations will have decreased by 6.1%. The reason for the decrease was primarily due to higher inventories purchased in order to support their customer order fulfilment in response to the ongoing material constraints in key components.
The metrics as of 30 June 2022 is Unfavorable. Although the build up of inventory is a welcome move in view of the increasing costs from inflation, stocking up excessively of inventory may lead to inventory obsolesce. In turn requires provision for impairments to be made.
Price-to-book ratio
Net Asset Value (“NAV”) of the Group as at 30 September 2022 was to SGD9.969 per share. Based on the closing share price of SGD16.980 as at 20 December 2022, this translates to a Price-to-book (“P/B”) ratio of 1.751.
The metrics as of 30 June 2022 is Unfavorable as investors will be paying a significant premium for its assets..
Debt-to-equity ratio
Based on the announcement on 4 November 2022, financial position was not included in the business update for the third quarter of 2022.
Debt-to-equity ratio as at 30 June 2022 is 35.3% as at 30 June 2022. It is worth nothing that the Venture has no external borrowings except for lease liabilities due to their right-of-use assets. The debt component relates to other payables.
The metrics as of 30 June 2022 is Favorable. Especially in view of the rising interest rates.
Interest coverage
Based on the announcement on 4 November 2022, interest expense and profit before tax was not included in the business update for the third quarter of 2022.
The interest coverage stands at 1,448.6 times as at 30 June 2022, using profit before tax of SGD212.8 million and interest expense of SGD0.147 million. The extremely high interest coverage is due to the Group has no external borrowings, which is a good position to be at in view that interest rates will continue to rise as the world looks to tackle inflation. The Federal Reserve on 14th December 2022 has hiked interest rates by another 0.5% to 4.5%, the highest level in 15 years, and is looking to to keep rates higher through next year with no reductions until 2024.
Website: Fed raises interest rates half a point to highest level in 15 years
The metric is Favorable.
Dividend yield
Although the Group does not have a formal dividend policy, it strives to pay dividends that are on par or higher than the previous year. Since FY 2018, the Group has paid interim and final dividends. Barring unforeseen circumstances, the Group aims to declare dividends at sustainable rates.
At 20 December 2022, with a closing share price of SGD16.98 and payout of SGD0.750, this translates to a stable dividend yield of 4.42%. The dividend payout of SGD0.750 is well supported by its earnings per share, allowing the Group to continue to build up their shareholder’s equity.
However, for my benchmark, a general reasonable range would be around an average of 6.0% to 7.0% in the current environment.
Website: Reasonable Dividend Yield Changes
If using dividend yield of 6% as a benchmark, based on the dividend of SGD0.750 there is potential for Venture to see its share price drop by another 26.4% to SGD12.50. Investors will thus need to be mentally prepared that the share price might further fall if interest rates for safe assets in Singapore approaches to cross 4%.
The dividend yield is Neutral.
Summary
In conclusion, Venture has continued to deliver a strong set of results and sustainable dividend payouts. Despite the drop in share price over the last few months, the fundamentals of Venture did not worsen significantly during this financial year. This suggests that the current share price is due to overall market sentiment, especially as safe assets have seen their yield rise considerably with rising interest rates.
As the macro-environment is expected to worsen at least in the short term, investors do need to keep an eye out for any new information relating to their operations.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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