On 5 May 2023, Venture Corporation Limited (“Venture”) have announced their first quarter business update for 2023. The market is definitely not in favor of their results, having seen the share price fall to SGD15.63 as at 9 May 2023.
Despite that, it is worth noting that their dividends are still well sustained by their earnings. Venture also had no borrowings as at 31 December 2022, which I do not expect to significantly change in 2023Q1. They are in a good financial position to ride out any uncertainties over the next few months. The fall in share price may be opportunities for the longer-term.
Website: General Announcement::1Q2023 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
| Metrics | Current | Previous |
|---|---|---|
| Revenue | -7.6% | +24.3% |
Venture took a revenue hit and saw the first quarter decrease by 7.6% to SGD821 million as compared to first quarter of 2022. The decrease was due to a general softening of demand and Venture expects near term demand weakness based on their customer’s outlook. This is a Unfavorable aspect of a dividend stock.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | -12.5% | +18.2% |
The net profit for the quarter saw a decrease by 12.4% to SGD73 million compared to SGD84 million in the same period for 2022. Accordingly earnings per share also decreased by 12.5% to SGD0.252 per share.
No details were provided for the quarter business update to determine if the more than proportionate fall in net profit was due to one-off expenses. Based on the information available, this is Unfavorable though not unexpected in view of the rising costs in the macro environment.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | No Info | +164.2% |
Based on the announcement on 5 May 2023, operating cashflows was not included in the business update for the first quarter of 2023.
The metrics Favorable as at 2022Q4 due to a significant increase. However there is a need to note that the working capital as at 31 March 2023 have decreased as compared to 31 December 2022.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.58 | 1.74 |
Net Asset Value (“NAV”) of the Group as at 31 March 2023 stands at SGD9.90 per share. Based on the closing share price of SGD15.63 as at 9 May 2023, this translates to a Price-to-book (“P/B”) ratio of 1.58.
The metrics is Unfavorable as investors will be paying a significant premium for its assets. The recent sharp fall in share price also is an indicator for what might happen to companies trading at higher ratios when they report unfavorable results.
Debt-to-equity ratio
| Metrics | Current | Previous |
|---|---|---|
| Debt-to-equity ratio | No Info | 32.0% |
Based on the announcement on 5 May 2023, no detailed breakdown of the financial position to determine the debt-to-equity ratio was provided in the business update for the first quarter of 2023.
The metrics was Favorable as at 31 December 2022 as Venture has no external borrowings except for lease liabilities due to their right-of-use assets. This is unlikely to change significantly as at 31 March 2023.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | No Info | 869.2x |
Based on the announcement on 5 May 2023, no detailed breakdown of the financial results to determine the interest coverage was provided in the business update for the first quarter of 2023.
The metric is Favorable as at 31 December 2022 where there was an extremely high interest coverage due to the Group had no external borrowings. This is unlikely to change significantly as at 31 March 2023.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 3.20% | SGD 0.500 |
| 2022 | 4.80% | SGD 0.750 |
| 2021 | 4.80% | SGD 0.750 |
| 2020 | 4.80% | SGD 0.750 |
| 2019 | 4.48% | SGD 0.700 |
| 2018 | 5.12% | 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 9 May 2023, with a closing share price of SGD15.63 and payout of SGD0.750, this translates to a stable dividend yield of 4.80%. Despite the worsening of financial results in 2023Q1, 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 2023Q2
It is worth noting that interest for long-term safe assets have stabilized and is on a downtrend. The June 2023 Singapore Savings Bond being issued with a 10-year average interest rate of 2.81%. There is a chance for interest rates may not increase significantly moving forward, and the required dividend yield of investor may be lower than current.
Website: SBJUN23 GX23060E 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 12.8% to SGD13.64. Investors will thus need to be mentally prepared that the share price might further fall if interest rates continue to increase or results worsened.
| Yield | Share Price | Downside |
|---|---|---|
| Current (4.80%) | 15.63 | – |
| 5.50% | 13.64 | -12.8% |
| 6.50% | 11.54 | -26.2% |
| 7.50% | 10.00 | -36.0% |
| 8.50% | 8.82 | -43.5% |
The dividend yield is Neutral.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | -7.6% | Unfavorable |
| Earnings per share | -12.5% | Unfavorable |
| Operating Cash Flows | +164.2% | Favorable |
| Price to Book Ratio | 1.58 | Unfavorable |
| Debt-to-equity ratio | 32.0% | Favorable |
| Interest coverage | 869.2x | Favorable |
| Overall | | Neutral |
In conclusion, this quarter has not been kind to Venture and further near-term demand weakness is expected. The current share price is definitely a combination of weaker results and overall market sentiment.
There is still a potential for dividend to be cut for the next few years, although Venture has been paying relatively consistent dividends throughout the years. Investors will therefore need to take note and assess their risk appetite to determine if the current share price is a good opportunity for the long term.
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 Full Year Result
