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Hot stock: Venture Corp shares down 8.6% after citing near-term volatility

SHARES in Venture Corporation are taking a beating in Friday's early session, with the electronics services firm S$1.66 or 8.6 per cent lower at S$17.63, as at 11.02am. 

The share price slide comes after the mainboard-listed company said during its earnings release that there could be near-term performance volatility due some customers' product transitions. However, Venture said that it expects the effect of the transitions to be mitigated by new product launches in the second half of fiscal 2019.

For the first quarter, Venture posted a net profit of S$90.9 million, up 8.6 per cent on the year-ago period, that fell in line with street expectations. Revenue rose 8.5 per cent to S$928.8 million, on the back of broad-based growth across the group's portfolio of technology domains, as well as "solid execution" of its customers' programmes, it said.

Venture added that it managed to sustain profitability due to its "differentiated" engineering capabilities and continual lean initiatives to drive productivity gains, along with "astute" cost management.

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On Friday, brokerage Maybank Kim Eng downgraded its recommendation of Venture to "hold" with a target price of S$19.74.

In the report, Maybank Kim Eng analyst, Lai Gene Lih, said that the firm has limited upside following a share-price rally this year (Venture rallied 38.2 per cent this year as at Thursday's closing) and management warning of near-term performance volatility, which may be a negative share-price catalyst.

"The volatility may result in a tough year-on-year earnings comparison in the next quarter, in our view."

Although the second half of fiscal 2019 is expected to be seasonally stronger for Venture, Maybank Kim Eng said that it could be less pronounced in fiscal 2019 as protracted trade tensions and the global economic slowdown presented a mixed outlook for Venture's customers.

The brokerage recommended that investors wait to accumulate the stock at a more attractive price point and/or when it becomes apparent that earnings volatility has passed.

A trader that The Business Times spoke to felt that given the near-term volatility, "it would be safer to book profits".

UOB Kay Hian has maintained its "hold" recommendation with a target price of S$19.01.

On the other hand, DBS Equity Research remains bullish on the outlook of Venture Corp's business despite concerns on near-term volatility. The research house has a "buy" call with a target price of S$21.70.

DBS analyst Ling Lee Keng said in a Friday report: "Venture stands out for its hard-to-replicate ecosystems and unique positioning at the forefront of technology. Its coveted partnerships with global technological leaders across various attractive end-markets have allowed the group to command industry-leading margins and are testament to its success in the area of value-creation."