Brokers' take

Venture Corporation | Hold Target price S$18.20 Oct 2 close: S$18.22 UOB Kay Hian, Oct 2

Electronics manufacturing services firm Venture is widely believed to be one of the makers of the IQOS, a smokeless tobacco device designed by Philip Morris.

Takeaways from Philip Morris International's Investor Day 2018 last week included the company making a rare disclosure of actual unit sales of IQOS in Japan from April to August.

In Q2 approximately 1.8 million IQOS kits were sold, while for the first two months of Q3, 1.7 million units were sold. This could have been helped by lower retail prices of IQOS kits by 30 per cent.

As of August, total users stood at 8.6 million, with fully converted users at 5.8 million.

Share of market for the key Japan market declined to 15.2 per cent as of end-August. IQOS conversion rates were also down to 58 per cent in August. South Korea, which could have potentially offset the slowdown in Japan, saw its market share increase slightly to 8.1 per cent as of August. Conversion rate in South Korea has also fallen to 59 per cent in August. Partially offsetting this is a pick-up in European countries Italy, Greece and Russia, which saw their market share increase.

Sembcorp Industries | Buy Target price S$3.90 Oct 2 close: S$3.05 DBS Group Research, Oct 1

Sembcorp Industries announced that its majority-owned overseas joint venture (JV) involved in an alleged environmental offence for the discharge of off-specification wastewater last year has been served with a further claim.

Sembcorp's proportionate share of the total potential fines and claims relating to the matter could amount up to S$100 million, including the provision previously made.

To recap, Sembcorp made provisions of S$25.4 million in Q42017 relating to this claim. Management is evaluating the need for further provision. As the potential fines and claims are now higher, we believe Sembcorp could made incremental provision of up to S$74.6 million, out of prudence.

This implies about a 20 per cent reduction in our FY2018 profit forecast. We are maintaining our forecasts for now. Sembcorp is due to release its Q3 results on Nov 2.

The JV is seeking legal advice, and will defend itself against the claims and/or claim amount. Legal proceedings are ongoing where the amount of fines and claims is subject to the outcome of these proceedings. We see this as an isolated case. While it could affect sentiment and stock performance in the near term, impact should be short-lived.

Compiled by Navin Sregantan

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