(NEUTRAL, S$7.27, TP S$7.47)
Lowering earnings forecast, but maintain NEUTRAL rating. 2Q results came in below expectation with S$628.7m in revenue (-3.7% YoY) and S$42.0m in profits (-8.4% YoY). 1H earnings accounts for only 41% of our estimates as the performance was impaired by a slower segment revenue growth and a rapid decline of USD/SGD (-11.0% YoY). We lowered down our FY11 revenue and earnings estimate by 15.1% and 5.8% respectively to factor in the weakening industry outlook and escalating currency risks. We maintain NEUTRAL on the stock, but lower our TP to S$7.47, pegging to 10.8x P/E (-1 SD 5-yr historical forward P/E).
Growth slowed and margin slide. Stripping out the translation loss, both Test & Measurement and Retail Solution segments continue to drive the group forward with 17.6% and 15.6% YoY growth respectively. However, the growth still fell short of our expectation as we were eyeing 25%. Meanwhile, 2Q net margin has also fallen slightly by 30bps to 6.7% YoY due to price erosion.
Gloomy manufacturing outlook and higher currency risks. Manufacturing activities have slowed significantly signalled by the tumbling of PMIs (Purchasing Managers Index) across the world. We anticipate this to drag on Venture’s 2H performance, especially its electronics manufacturing services (EMS) segment (65% of FY10 revenue). Moreover, the risks for USD to continue to depreciate remain high, which will hit Venture.
Healthy balance sheet to provide downside cushion. Venture continues to carry a healthy balance sheet. It is sitting on a net cash balance of S¢38.3/share. This strong cash reserve will act as a protective cushion amid global uncertainty and we expect the group to continue its sound dividend payout of S¢50/share, translating to a yield of 7.6%.
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