On 4 August 2023, Venture Corporation Limited (“Venture”) have announced their first half year result for 2023. There is continued weakness as they navigate through 2023, and the general expectations is that this trend will continue for the rest of the year. Investors will need to take note that it may be a bumpy ride before things may get a chance to improve in 2024.
It is worth noting that their current dividend payout is still well sustained by their earnings. Venture also had no borrowings as at 30 June 2023, which I do not expect to significantly change over the next few quarters. 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. At the current share price, the dividend yield is 5.28%, which is comparable to many of the Real Estate Investment Trusts (“REITs”) in the market.
Website: Financial Statements And Related Announcement::Half 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 | -11.9% | -7.6% |
Venture took a revenue hit and saw the first half decrease by 11.9% to SGD1,582 million as compared to SGD1,796 million in the first half of 2022. The decrease was due to demand softening across the majority of its technology domains and customers’ inventory destocking. This is a Unfavorable aspect of a dividend stock.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | -19.7% | -12.5% |
The net profit for the half year saw a decrease by 19.6% to SGD140 million compared to SGD174 million in the same period for 2022. Accordingly earnings per share also decreased by 19.7% to SGD0.481 per share. The decrease could be mainly seen from the fall in revenue and the corresponding expenses arising from “Changes in finished goods, work in progress and raw materials used”. This is Unfavorable.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | +435.1% | No Info |
Cashflow generated from operations increased by 435.1%. The main reason for the increase is due to collection of receivables and there were no built up of inventory noted this half of the year. The metrics is Favorable.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.47 | 1.58 |
Net Asset Value (“NAV”) of the Group as at 30 June 2023 stands at SGD9.67 per share. Based on the closing share price of SGD14.20 as at 8 August 2023, this translates to a Price-to-book (“P/B”) ratio of 1.47.
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 | 29.1% | No Info |
Debt-to-equity ratio as at 30 June 2023 is 29.1%. This is computed based on total assets of SGD3,636 million and total liabilities of SGD820 million. 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 | 452.0x | No Info |
The interest coverage stands at 452.0 times as at 30 June 2023, using profit before tax of SGD171.3 million and interest expense of SGD0.380 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 26 July 2023 has once again hiked the interest rates by a quarter percentage point to a range between 5.00% and 5.25%, the highest level in 22 years and are likely to keep it at these levels over the next few years.
Website: Fed approves hike that takes interest rates to highest level in more than 22 years
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 5.28% | SGD 0.750 |
| 2022 | 5.28% | SGD 0.750 |
| 2021 | 5.28% | SGD 0.750 |
| 2020 | 5.28% | SGD 0.750 |
| 2019 | 4.93% | SGD 0.700 |
| 2018 | 5.63% | 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 8 August 2023, with a closing share price of SGD14.20 and payout of SGD0.750, this translates to a stable dividend yield of 5.28%. Despite the worsening of financial results in 2023, 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 2023Q3
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 4.0% 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 (5.28%) | 14.20 | – |
| 5.50% | 13.64 | -4.0% |
| 6.50% | 11.54 | -18.7% |
| 7.50% | 10.00 | -29.6% |
| 8.50% | 8.82 | -37.9% |
The dividend yield is Neutral.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | -11.9% | Unfavorable |
| Earnings per share | -19.7% | Unfavorable |
| Operating Cash Flows | +435.1% | Favorable |
| Price to Book Ratio | 1.47 | Unfavorable |
| Debt-to-equity ratio | 29.1% | Favorable |
| Interest coverage | 452.0x | Favorable |
| Overall | | Neutral |
In conclusion, 2023 is likely to be a difficult year for Venture and there may be further near-term demand weakness to be expected. The current share price is definitely a combination of weaker results and overall market sentiment.
Although Venture has been paying relatively consistent dividends throughout the years, there is still a potential for dividend to be cut for the next few 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): 2023 First Quarter Business Update
