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Broker's take: Maybank KE puts a 'buy' on Venture Corp, with bullish target price of S$27.50

VENTURE Corporation's expected stellar performance in 2017 is "no fluke", says a Maybank Kim Eng analyst as the brokerage initiated coverage of the stock on Wednesday (Jan 10) with a "buy" call and a S$27.50 target price.

Investment analyst Lai Gene Lih predicted that the group's forthcoming full-year results will see revenue surge by 39 per cent on the previous year, to around S$4 billion.

Maybank Kim Eng's target price for the counter is now the highest in town, beating out analysts' consensus, as compiled by Bloomberg, of S$24.35 by 12.9 per cent.

Mr Lai said that this price is based on an estimated price-to-earnings ratio of 18.8 times at the end of 2018, or a 10 per cent premium over the ratio of 17.1 times for Venture's global high-mix, low-volume peers.

DBS Vickers had reiterated its target of S$26 on Jan 5, when Venture Corp joined the Straits Times Index as a constituent stock and replaced warehouse provider Global Logistic Properties, set to be delisted this month.

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Calling Venture's growth prospects "multi-faceted", Mr Lai said in a report on Wednesday: "The Street may be underestimating forward revenue and margins."

Mr Lai pointed to his analysis of the electronics manufacturer's potential customers and contracts.

He noted that Venture does not give a breakdown of its revenue, making growth drivers unclear.

But he pegged customers such as semiconductor producer Broadcom, life sciences company Thermo Fisher Scientific, technology conglomerate Honeywell International and robotics multinational ABB Group as likely candidates behind the rise in Venture's turnover.

"If any of them were responsible for its revenue surge, their forward revenue outlook could then signal allocations coming along (Venture's) way," Mr Lai wrote.

Market chatter has also suggested that Venture clinched both a large tobacco company's contract for smokeless cigarette devices, as well as a smart toothbrush deal from a consumer giant, Mr Lai added.

But he cautioned that Venture's rumoured involvement with these corporations is unconfirmed for the time being.

On top of possible new clients, Venture is likely reaping the rewards of its investments in research and development (R&D) for higher-value products, said Mr Lai.

Radio frequency, optics and biology are some areas where the group has been "beefing up" its R&D capabilities to retain customers, he noted.

He cited Venture's documented supply of genome-sequencing platforms for biotechnology company Illumina amid the industry rise of genomics.

His report predicted that dividends could rise to S$0.60 to S$0.70 a share for the financial years 2017 through 2019, up from S$0.50 currently.

But the payout could be crimped by the possibility of Venture building a factory on its land in Batu Kawan, in Malaysia's Penang state.

Venture's latest results, released in November 2017, showed third-quarter earnings jumped by 135 per cent on the previous year to S$111.4 million, blowing past consensus forecasts.

Mr Lai wrote that downside risks include customer demand for Venture to hold more stock at its major hubs, tying up working capital.

The group's revenue is also entirely in US dollars, so an overly strong greenback could hurt customers' competitiveness, while a soft US currency might eat into Singdollar earnings.

Venture closed at S$22.48 on Wednesday.

It shed S$0.04, or 0.18 per cent, to trade at S$22.44, just past 11am on Thursday.

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