Trading Opportunity Ahead
2Q13 within expectations. 2Q13 earnings was poorer by 10% YoY but recovered QoQ by 7% to SGD30m. The better QoQ comparison was driven by higher revenue in particular from Test & Measurement where Venture enjoyed market share gains from existing customers, and Printing & Imaging which stabilised after a horrendous 1Q. Retail Store Solutions was decently stable given that 2012 was a very high base. Disappointingly however, Networking & Communication continued to be dragged down by a slow M&A-related transition at major customer Hypercom, which was acquired by Verifone.
Better 2H expected but backend loaded. 2H13 is expected to improve, with management pointing out signs of recovery from most existing customers, while new customers won in 2012 should start to contribute. Having said that, we believe 3Q13 earnings will be, at best, flatline on a YoY basis before positive growth returns in 4Q13, which is typically Venture’s best quarter. This should be driven by optical communications customer Oclaro, where the business extraction has been picking up more momentum lately.
Dividends look safe for this year. Free cashflow improved from just SGD6m in 1Q13 to SGD40.7m in 2Q13. This is inline with last year’s trend and does not take yet into account expectations for a significant jump in capex in 2H13 given that Venture still has to pay for the bulk of its SGD38m purchase of a Singapore factory. YTD capex is only about SGD16m but we expect at least SGD40m in 2H13. Nevertheless, given the tight way Venture runs its balance sheet, we would expect dividends to remain safe at least for FY13.
Trading opportunity ahead, upgrade to HOLD. While we do not see any strong catalysts as yet in 3Q13, we want to position for a trading buy opportunity in 4Q13 and especially heading into 1Q14. Typically, Venture’s share price does better at the year-end when investors look forward to its SGD0.50 a share annual dividend, which is yielding almost 7%