CGS-CIMB has turned cautious on Venture Corporation’s : V03 0% near-term earnings outlook as it foresees a decline in the third quarter (Q3) of FY2023 net profit, amid continued inventory depletion by the electronics manufacturer’s customers.

The research house on Wednesday (Oct 11) issued a lower price target of S$16.61 compared to S$16.80 previously.

The revised target is based on a lower 15-year average price-to-earnings multiple of 14.6 times against FY2025 forecasts, versus the stock’s previous 23-year average of 15.2 times.

Contrary to CGS-CIMB’s earlier view that the group’s second half (H2) net profit could mirror first half (H1) levels in FY2023, the research house said it now projects a 34.3 per cent year-on-year and 3.6 per cent quarter-on-quarter fall in Q3 net profit figures to S$64 million.

The lower H2 projections translate to a FY2023 net profit estimate of S$270 million, which is 4.5 per cent lower than what was previously forecast.

Its analyst William Tng noted that revenue declines in Venture’s “disappointing” set of H1 FY2023 financials were largely due to softening demand and ongoing inventory destocking at its customers’ end.

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He expects Venture to report a “reasonable” 5 per cent revenue growth for FY2024 and FY2025, respectively. This compares with the Bloomberg consensus revenue growth expectations of 5.2 per cent for FY2024 and 7.8 per cent for Venture’s customers. “We remain cautious on Venture’s revenue outlook for FY2024 to FY2025 as we believe demand from customers could remain soft,” said Tng.

So CGS-CIMB’s net profit projections for FY2024 and FY2025 have been cut by 2.4 per cent and 2.9 per cent, respectively.

Noting that Venture’s net profit margins could be “pressured by the slow revenue”, the research house has also trimmed its FY2024 net profit margin forecasts by 0.2 percentage point, and another 0.3 percentage point for FY2025.

CGS-CIMB nonetheless reiterated its “add” call on the stock in view of its estimated 6.11 per cent dividend yield, as well as its potential for earnings per share growth resumption in the next two fiscal years. “We expect Venture to maintain its FY2023 to FY2025 dividend per share at S$0.75 as its net cash balance as at end-June 2023 was S$895.6 million, and we expect limited capex requirements over FY2023 to FY2025,” said Tng. 

Shares of Venture were up S$0.03 or 0.2 per cent at S$12.37 as at the midday trading break on Thursday.