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Hot stock: Venture shares down 3.5% as manufacturing, trade woes persist

SHARES in Venture Corp faced a selloff during Wednesday's session with analysts lowering their outlook on the mainboard-listed firm due to headwinds it faces as global manufacturing has slowed and the US-China trade conflict continues to persist.

As at 1.52pm, shares in the Straits Times Index component were trading S$0.58 or 3.5 per cent lower at S$15.88. Venture shares are down 7.7 per cent this week.

Analysts have noted that the impact of the trade war between the US and China has continued to weigh on manufacturing firms globally. Moreover, with the uncertainty surrounding whether the trade relationship between the two countries can improve, share price is expected to remain volatile.

CLSA analyst Low Horng Han noted in a report on Monday that even though Venture Corp has "enjoyed a broader customer base and product mix over the past year, it may be challenged to deliver growth as the macro outlook has weakened". 

Mr Low added: "Customer Broadcom’s recent profit warning citing the trade conflict has reduced earnings visibility and could be a prelude to downward earnings per share revisions from other customers."

Meanwhile, RHB analyst Jarick Seet said on Wednesday: "We note that global peers have been impacted, as we see weaknesses in their financials. Despite Venture Corp being more resilient, it should be hard for the company to avoid headwinds ahead."

They expect profitability to be impacted in the coming quarters, with Mr Seet adding that it may be especially hit in Q2.

With products of Venture's customers moving into the end-of-life stage, the firm expects product transition. UOB Kay Hian analyst John Cheong said that this could introduce some near-term volatility to its financial performance but it may be mitigated by new product launches in the second half of the year.

That said, Mr Cheong believes that the uncertain macroeconomic environment contributes to the higher risk that new launches might be delayed. 

In light of trade issues between the US and China, Venture Corp has indicated that it will beef up manufacturing capacity in Malaysia in the first half of 2019.

"However, this trend appears to have slowed despite the trade war escalating as the qualification process could take longer than expected. We think market weakness may have negated the urgency to shift capacity," CLSA's Mr Low said.

CLSA downgraded Venture Corp to "underperform" on Monday with a target price of S$17.30. The downgrade is reflective of "tech weakness across the supply chain and manufacturing migration from China to Malaysia, which has slowed".

Mr Low acknowledged in his report that Venture's downgrade does not change his view that the firm stands to benefit from "secular growth in healthcare and life sciences".

RHB Research Institute and UOB Kay Hian have maintained their recommendations, but have lowered target prices to take into account the potential headwinds the electronics services firm could face.

RHB has a "neutral" call with a target price of S$16.30, while UOB has a "hold" call with a target price of S$17.91.