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Broker's take: CGS-CIMB downgrades Venture to 'hold', cuts target price to S$17.83

ANALYSTS at CGS-CIMB have downgraded their call on mainboard-listed Venture Corporation to "hold" and slashed the target price of the stock to S$17.83 from S$25.64 as the brokerage throws caution to the wind on the ongoing rifts between the US and China.

This comes despite Venture not having been heavily impacted by the trade tensions at present.

In its research note, CGS-CIMB said that the electronics services provider is still targeting growth in FY2018 and there were also "no changes to guidance/visibility from customers at the moment".

While there are are still component shortages, Venture has been able to manage this given its established relationships with suppliers, CGS-CIMB added.

The brokerage suggests that Venture could post a net profit of S$87.6 million for Q2, which would represent a growth of 25 per cent year-on-year (y-o-y) and 5 per cent quarter-on-quarter.

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However, in half year terms, the net profit could fall by about 15.7 per cent y-o-y given Venture's high profit base in H2 2017, it added. The brokerage also assumed that Venture’s forecasted sales growth over FY2018-2020 would revert to the 7.3 per cent growth rate experienced over FY2014-2016.

"Despite the threat from higher costs due to the tariff impact as well as the ongoing component shortage, we leave our margin assumptions intact as we assume that Venture will continue to manage costs well (as evident in Q1 2018 results)," CGS-CIMB said.

A key upside risk to its call is the resolution of US-China trade tensions, which could see Venture revert to a higher revenue growth rate over CGS-CIMB's forecast period. Downside risks could come from product launch delays by customers.

At 3.07pm, Venture shares were trading down S$0.41, or 2.5 per cent, at S$16.26.

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