On 3 November 2023, Venture Corporation Limited (“Venture”) have announced their third quarter business update for 2023. Based on their results so far for 2023, it would seem as they are able to generate sufficient profits to ensure sustainability of their dividend payout.
Keep in mind that the long term interest rates are currently on a downtrend after the spike up the last few months. There is therefore a possibility of share price appreciation when safe assets adjust their yield downwards. Until such a scenario plays out, Venture is in a strong financial position to navigate the uncertainties.
Website: General Announcement::Executive Summary And General Comments For 9M 2023
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 | -18.8% | -11.9% |
For the 9 months ending 30 September 2023, Venture saw revenue decrease by 18.8% to SGD2,288 million as compared to SGD2,818 million in the same period from the previous financial year. The decrease was due to continued demand softening across the majority of its technology domains and customers’ inventory destocking, unchanged from the previous quarters. This is a Unfavorable aspect of a dividend stock.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | -25.2% | -19.7% |
The net profit for the three quarters saw a decrease by 25.2% to SGD203 million compared to SGD271 million in the same period for 2022. Accordingly earnings per share also decreased by 25.2% to SGD0.697 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 | +435.1% |
Based on the announcement on 3 November 2023, operating cashflows was not included in the business update for the third quarter of 2023.
The metrics was Favorable in the previous quarter as cashflow generated from operations increased by 435.1%.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.33 | 1.47 |
Net Asset Value (“NAV”) of the Group as at 30 September 2023 stands at SGD9.66 per share. Based on the closing share price of SGD12.81 as at 24 November 2023, this translates to a Price-to-book (“P/B”) ratio of 1.33.
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 | 29.1% |
Based on the announcement on 3 November 2023, no detailed breakdown of the financial position to determine the debt-to-equity ratio was provided in the business update for the third quarter of 2023.
The metrics was Favorable as at 30 June 2023 as Debt-to-equity ratio was 29.1%. Venture has no external borrowings except for lease liabilities due to their right-of-use assets. Based on the information available, this is unlikely to change as at 30 September 2023.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | No Info | 452.0x |
Based on the announcement on 3 November 2023, no detailed breakdown of the financial results to determine the interest coverage was provided in the business update for the third quarter of 2023.
The metric is Favorable as at 30 June 2023 where there was an extremely high interest coverage due to the Group had no external borrowings. This is unlikely to change significantly as at 30 September 2023.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 5.85% | SGD 0.750 |
| 2022 | 5.85% | SGD 0.750 |
| 2021 | 5.85% | SGD 0.750 |
| 2020 | 5.85% | SGD 0.750 |
| 2019 | 5.46% | SGD 0.700 |
| 2018 | 6.25% | 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 24 November 2023, with a closing share price of SGD12.81 and payout of SGD0.750, this translates to a stable dividend yield of 5.85%. 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 6.0% to 7.0%, and Venture is below the range.
Website: Reasonable Dividend Yield 2023Q4
If using dividend yield of 6.0% as a benchmark, based on the dividend of SGD0.750 there is potential for Venture to see its share price drop by another 2.4% to SGD12.50. 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 (5.85%) | 12.81 | – |
| 6.00% | 12.50 | -2.4% |
| 7.00% | 10.71 | -16.4% |
| 8.00% | 9.38 | -26.8% |
| 9.00% | 8.33 | -34.9% |
The dividend yield is Neutral.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | -18.8% | Unfavorable |
| Earnings per share | -25.2% | Unfavorable |
| Operating Cash Flows | No Info | Favorable |
| Price to Book Ratio | 1.33 | Unfavorable |
| Debt-to-equity ratio | No Info | Favorable |
| Interest coverage | No Info | Favorable |
| Overall | | Neutral |
Overall the metrics indicate that it is neutral to invest in Venture. The fall in revenue and earnings per share is not unexpected given that there is a slowdown in their industry over the last few months. Although there are currently no news of any reversal in the near future, when the opportunity comes Venture is in a strong financial position to be able to navigate any uncertainties and capitalise on opportunities.
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 Half Year Result
