Event
Venture’s 2Q11 results were slightly below our lowered forecasts but still significantly below consensus. While consensus is likely to be cut following this set of results, we believe the share price plunge of recent weeks has already factored in the heightened uncertainties. The stock currently trades at 11x current year forecast earnings (below its long-term average valuation of 15x) and 7.6% dividend yield. Maintain BUY.
Our View Revenue fell 4% YoY but net profit fell 9% YoY. Sequentially however, both the topline and bottomline improved. The main culprit behind the YoY weakness was the steep 12% drop in the US$. In US$ terms, revenue actually improved by 8%. Also a factor was component shortages that affected certain customers’ ability to deliver on order commitments.
As expected, Venture’s focus on enterprise products rather than consumer products served
it well amidst the continuing weakness in US consumption. All segments except Networking & Communication showed relatively robust growth, but especially strong were the enterprise-driven Test & Measurement and Retail Store Solutions & Industrial Products segments.
Earlier customer caution has resolved in favour of greater optimism. Despite the weak economic outlook, Venture expects its sequential results to benefit from the higher volume expectations of customers in the more resilient Test & Measurement, RSS & Industrial Products and Data Storage segments. However, with US$ volatility continuing, we have conservatively cut our FY11 forecast further by 7%.
Action & Recommendation
Maintain BUY with the target price lowered to $9.68 (previously $10.40), still based on 15x target valuation.
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