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Broker's take: DBS upgrades Venture to 'buy', says worst could be over for supply chain

DBS Group Research has upgraded Venture Corporation to "buy" from "hold", with a higher target price of S$20.70. DBS premised its more optimistic view on a recovery in the supply chain, Venture's strong financials, and the success of its partners.

Meanwhile, RHB has placed Venture "under review" from a "neutral" call with a target price of S$15.10, as its research team awaits confirmation on the company's outlook. Venture is due to report its second-quarter results on Aug 7.

Shares of the mainboard-listed provider of technology services, products and solutions were trading up 2.8 per cent or S$0.51 to S$18.65 as at 11.42am on Wednesday.

Separate channel checks by RHB and DBS showed positive signs when it comes to Venture's production activities and supply chain. 

DBS is of the view that the "worst could be over" for supply chain and demand is still "relatively strong", judging from recent financial results of industry leaders.

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Based on DBS's channel checks, supply chain, especially in Asia, has almost recovered to pre-Covid-19 levels. However, the supply chain is "still not perfect" as manufacturers like Venture are still facing issues relating to the uncertain global economic outlook.

"Customers are still not willing to commit to orders way in advance," DBS analyst Ling Lee Keng said in a research note on Wednesday.

As there is no clear demand signal, margins could be under pressure due to higher costs to fulfil orders given shorter lead time. Venture's customers include multinational corporations located in Asia, with Singapore accounting for 19 per cent.

RHB analysts Jarick Seet and Lee Cai Ling expect Venture's performance to be "relatively weak", due to the closure of its factories in Malaysia due to the movement control order, as well as safe-distancing regulations which slowed down production in Singapore.

"However, our channel checks indicate that most of its factories have since ramped up production, and orders remain strong," Mr Seet and Ms Lee said in a research note on Wednesday.

Although Venture's April data is expected to remain weak, RHB anticipates improvement in the company's performance in the quarters ahead. This comes as most, if not all, of Venture's operating entities receive exemptions to operate without constraints on the number of employees on duty or limits on working hours. 

For DBS, Venture's expertise and entrenched relationship with industry leaders in the various technology domains, coupled with its balance sheet strength, provide a strong foundation for the group to obtain sustainable growth.

Ms Ling said investors should focus on the longer-term benefits and "look beyond the near-term earnings volatility", especially during the pandemic period.

"We continue to expect Venture to emerge stronger from this pandemic," she said.

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