VENTURE (Lim&Tan)

S$6.46-VENM.SI

􀁺 We are lowering our recommendation on Venture from BUY to HOLD for the following reasons:

- channel checks reveal that management’s previous bullish expectations of a better 2H 2011 may not materialize due to order delays and push-outs due to the ongoing global financial uncertainties caused by the European debt crisis as well as weak demand in the US;

- the above has been backed up by the numerous downgrades in the technology industry in recent times;

- while Venture’s big volume mass market OEM business with HP has been transferred to Hon Hai over the last 2 years, it still has some ODM business with them and the current top level changes is causing some order push-outs;

- another customer in the test and measurement segment is also seeing some supply chain issues;

- the above suggests that the traditionally stronger 2H may not materialize this year;

- we are lowering our profit forecast from $188mln to $165mln, representing a 12% yoy decline from last year’s $188mln;

- with consensus estimates at $188mln, we are thus 12% lower than the market;

- this would bring its PE up from 9.4x to 10.7x, which is in line with Hon Hai’s 10.5x, but at a premium to US peer Flextronics and Jabil’s 7x;

- despite the potential downward adjustment in consensus earnings estimates, we do not believe the stock is a sell as we believe that the company will still be able to sustain its 55 cents dividend payment early next year (when they report full year results) giving an attractive yield of 8.5% (payout ratio of 90%), and it is trading at about 1x price to book, at the lower end of its historical trading range.