On 24 February 2023, Venture Corporation Limited (“Venture”) have announced their full year result for 2022. I liked that they continued to have no borrowings, with dividends 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.
Although they have continued to deliver a strong set of results, it is worth noting that interest rates are currently still on an upward trajectory. Their share price may continue to decrease as safer assets continue to be able to match their current dividend yield. Investors looking for stable dividend may reassess their required return from Venture.
There is also the news of Silicon Valley Bank collapsing last week. Venture may not necessarily be directly affected, but there is a possibility for market sentiment to be sour over the next few weeks or months as the full potential impact from the collapse is assessed and unraveled.
Website: Financial Statements And Related Announcement Full Yearly Results
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
| Metrics | Current | Previous |
|---|---|---|
| Revenue | +24.3% | +21.0% |
It was noted the revenue increased by 24.3% to SGD3,863 million for FY2022 from SGD3,107 million in the previous financial year. The increase was on the back of broad-based demand across the Group’s diversified portfolio. This is a Favorable aspect of a dividend stock.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | +18.2% | +15.6% |
The increase profit before tax was in line with the increase in revenue, though the increase in taxes is more than proportionate at 66.7%. The result is net profit for the year increased by 18.5% to SGD370 million compared to SGD312 million in 2021, and accordingly earnings per share also increased by 18.2% for 2022 to SGD0.0127 per share.
This is Favorable in view of the rising costs in the macro environment. It shows that Venture is able to generate sustainable profit and pass on costs to the customers.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | +164.2% | -6.1% |
Cash flows from operations for 2022 have increased significantly by 164.2% to SGD269 million compared to SGD101 million in 2021. The reason for the increase was primarily due to less inventory purchased and built up as compared to the previous financial year. The inventory balances remain relative unchanged between 2022 and 2021 at SGD1,065 million.
The metrics Favorable, as Venture may not be stocking up excessively of inventory and reduce the likelihood of inventory obsolesce.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.74 | 1.75 |
Net Asset Value (“NAV”) of the Group as at 31 December 2022 stands at SGD9.758 per share. Based on the closing share price of SGD16.950 as at 10 March 2023, this translates to a Price-to-book (“P/B”) ratio of 1.74.
The metrics is Unfavorable as investors will be paying a significant premium for its assets..
Debt-to-equity ratio
| Metrics | Current | Previous |
|---|---|---|
| Debt-to-equity ratio | 32.0% | 35.3% |
Debt-to-equity ratio as at 31 December 2022 is 32.0%. 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 is Favorable, especially in view of the rising interest rates.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 869.2x | 1,448.6x |
The interest coverage stands at 869.2 times as at 31 December 2022, using profit before tax of SGD448.9 million and interest expense of SGD0.517 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 1 February 2023 has hiked interest rates to a range between 4.5% and 4.75%, and gave little indication it is nearing the end of this hiking cycle.
Website: Fed raises rates a quarter point, expects ‘ongoing’ increases
The metric is Favorable.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 2.95% | SGD 0.500 |
| 2022 | 4.42% | SGD 0.750 |
| 2021 | 4.42% | SGD 0.750 |
| 2020 | 4.42% | SGD 0.750 |
| 2019 | 4.13% | SGD 0.700 |
| 2018 | 4.72% | SGD 0.800 |
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 FY2018, the Group has paid interim and final dividends. Barring unforeseen circumstances, the Group aims to declare dividends at sustainable rates.
At 10 March 2023, with a closing share price of SGD16.95 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 5.5% to 6.5%, and Venture is below the range.
Website: Reasonable Dividend Yield 2023Q1
It is worth noting that interest for long-term safe assets have stabilized and is on a small uptrend. The April 2023 Singapore Savings Bond being issued with a 10-year average interest rate of 3.15%, which while it is lower than most of the previous few months, is higher than the March 2023 bond. There is a chance for interest rates to further increase, and the required dividend yield of investor may be higher than current.
Website: SBAPR23 GX23040S Bond Details
If using dividend yield of 5.5% as a benchmark, based on the dividend of SGD0.750 there is potential for Venture to see its share price drop by another 19.5% to SGD13.64. Investors will thus need to be mentally prepared that the share price might further fall if interest rates continue to increase.
| Yield | Share Price | Downside |
|---|---|---|
| Current (4.42%) | 16.95 | – |
| 5.50% | 13.64 | -19.5% |
| 6.50% | 11.54 | -31.9% |
| 7.50% | 10.00 | -41.0% |
| 8.50% | 8.82 | -47.9% |
The dividend yield is Neutral.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | +24.3% | Favorable |
| Earnings per share | +18.2% | Favorable |
| Operating Cash Flows | +164.2% | Favorable |
| Price to Book Ratio | 1.737 | Unfavorable |
| Debt-to-equity ratio | 32.0% | Favorable |
| Interest coverage | 869.2x | Favorable |
| Overall | | Favorable |
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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Website: Venture Corporation Limited (SGX: V03): 2022 Third Quarter Business Update
