Published May 5, 2009

Venture may be down but it's far from being out

By OH BOON PING

	Email this article
	Print article
	Feedback

HOW the mighty have fallen. Last week, Singapore's largest electronics maker Venture Corporation continued to report plunging profits - this time by as much as 50 per cent to $27.7 million for the first quarter of 2009, while revenue sank 23 per cent to $725.5 million - a far cry from the consistent income and revenue growth the company posted in earlier years.

But more than just the poor showing is the fact that investor interest in the stock has markedly waned. Since December last year, for instance, major shareholder Franklin Resources has pared its stake from 7.87 per cent to 4.94 per cent.

And at the first-quarter results briefing, there were noticeably fewer analysts present, and even fewer reporters, compared with previous briefings. Then, the conference room would be packed with some 20 or so analysts together with five or more financial reporters. No longer.

The reversal of fortunes is not surprising given that technology stocks today no longer command the attention that they used to enjoy.

The tech bubble burst in 2001 brought about a plunge in the sector's valuations to single-digit levels, and this later attracted a wave of private equity takeovers amid a liquidity-flooded market.

As many of the value stocks were taken off the Singapore Exchange, a number of research houses also scaled back on their coverage of the sector.

In Venture's case, its fortunes took a dive alongside the crash in the sub-prime housing market, when the group booked losses from writing down its collateralised debt obligations, worth some $118.6 million. That later prompted some analysts to urge caution on the stock, while others said that there were 'hidden gremlins' in Venture's balance sheet.

The flagship of Singapore tech sector was dealt a further blow when it lost its status as an index stock under the revised Straits Times Index, which led to the stock falling out of the investment radar screen.

However, all is not lost since the company appears to have turned the corner, with fundamentals remaining sound.

At the first- quarter briefing, chief executive Wong Ngit Liong pointed out that some customers' forecasts improved during the quarter, and this implies that these players could have over-reacted to the economic downturn and are now restocking their channels.

Near term, monthly orders continue to improve after bottoming out during the first two months of 2009, and sequential improvements could continue in the coming quarters.

Plus, the management has rightly chosen to focus on value creation for its customers, instead of cutting prices to grow its market share.

Despite the higher inventory levels, its balance sheet continued to improve both sequentially and on a year-on-year basis. For example, net cash rose to $304 million despite repayment of some $37 million in borrowings during the period.

However, one thing the company should take note of is its disclosure standards.

In the past, the group used to provide a breakdown of its revenue among key segments and their year-on-year changes, but such information is no longer available in its stock exchange filings.

This is a step backwards, and if Venture is serious about reviving investor interest and confidence in the stock, it should seriously consider releasing such information to the market again.

Failure to do so is not just against the spirit of good disclosure, but it also adds to rumours and loose talk.