Broker's take: RHB upgrades Venture to 'buy'; share price hits 52-week high

ELECTRONICS manufacturing services firm Venture Corp's share price hit a 52-week high of S$21.21 on Wednesday morning.

RHB has also upgraded the counter to "buy" with a higher target price of S$22.60, from S$20.60 previously.

The counter began Wednesday at S$20.85, up 1 per cent from the previous day's close of S$20.65. It then gained a further 1.8 per cent in the first 40 minutes of trade to hit S$21.21 but retraced slightly to end the first half of the trading day at S$21.08.

In a report on Wednesday, RHB analyst Jarick Seet said the company should "chart a steady recovery" in the second half of this year on a brighter outlook.

"The company is now fulfilling its backlog of orders, while its research and development laboratory plans to release some new products for the manufacturing segment in early-2021," he said.

Despite lower revenues, Mr Seet noted that Venture is "trying hard to maintain margins" by implementing further cost controls and improving production efficiency.

While average selling price pressures should align its rates to match end-market demand, Venture's non-essential market segments may see some pressure, given their slower rate of recovery amid the Covid-19 pandemic, he added.

For now, the brokerage said Venture's production is unlikely to rebound to pre-pandemic levels, given social-distancing measures and restrictions. However, the company's growing diversification of customers is a strategy that is likely to pay off. Its top 10 customers now account for 45 to 55 per cent of revenue, down from 50 to 60 per cent previously.

In particular, Mr Seet said Venture could tap the increased orders from customers in industries such as life sciences, medical devices and equipment, networking and communications and semiconductors.

He added that the company has also gained "meaningful traction" with new customers on both year-on-year and quarter-on-quarter basis.

On the back of "more resilient margins and stability" compared to its peers, RHB has now pegged Venture to a higher FY21F price-to-earnings (P/E) ratio of 19 times from the previous 17 times.

Mr Seet said that in terms of rewarding shareholders, the company prefers to dole out "long-term stable and sustainable dividends", citing its higher interim dividend of S$0.25 per share for H1 this fiscal year, compared to S$0.20 per share in the year-ago period.

Assuming Venture's final dividend remains unchanged from last year, the group's FY20F dividend will likely be raised to S$0.75 from S$0.70 in FY19, representing a 3.6 per cent yield.

"We think this is highly sustainable, and investors should continue enjoying higher dividends ahead, if the company's performance continues to improve," said Mr Seet.