CGS International May 14, 2025 Venture Corporation: Navigating a Challenging FY25F with Strategic Resilience 1Q25 Performance Overview: Revenue Dip Offset by Robust Profit Margins Venture Corporation’s 1Q25 revenue experienced a decline of 7% quarter-over-quarter (qoq) and 8% year-over-year (yoy), landing at S\$617 million. [[1]] This figure aligns with 23% of both CGS International’s and Bloomberg consensus’ full-year forecasts, deeming the revenue performance in line with expectations. [[1]] Net profit for 1Q25 reached S\$56 million, marking an 8% decrease qoq and a 7% decrease yoy. [[1]] This places the net profit at 25% of CGS International’s and 23% of Bloomberg consensus’ full-year forecasts, considered in line with or slightly below expectations. [[1]] Despite the revenue decline, Venture Corporation maintained a robust net profit margin of 9.1% in 1Q25. [[1]] This was achieved through a continued emphasis on cost efficiency and the delivery of high-value solutions via differentiated capabilities. [[1]] As of the end of March 2025, the net asset value per share stood at S\$10.11. [[1]] Demand Factors and R&D Impact The revenue decrease is attributed to reduced demand from a major customer (contributing over 10% of FY24 revenue) within the Lifestyle Consumer technology sector. [[1]] Venture Corporation’s R&D design innovation enhanced the reliability and longevity of this customer’s key products. [[1]] This improvement led to a lower product replacement rate, impacting revenue. [[1]] Tariff Uncertainty and Mitigation Strategies Management indicates that the prevailing tariff situation introduces substantial uncertainty into the global economic landscape. [[2]] There is a lack of clear visibility regarding the tariff environment over the next 12 months. [[2]] Venture is proactively developing competitive solutions for its clientele and partners. [[2]] These solutions aim to alleviate any tariff-related effects using its production facilities in the US, Singapore, and Malaysia. [[2]] The management anticipates potential opportunities to grow market share across at least three or four of the technology domains in which the group is active in the coming years. [[2]] Investment Recommendation: Hold with Revised Target Price CGS International has reiterated a Hold recommendation on Venture Corporation. [[2]] This is based on a total potential return of 3.99%. [[2]] The target price has been adjusted upwards from S\$10.13 to S\$10.97. [[2]] This revision reflects a shift to 13.1x FY26 P/E, which is 0.5 standard deviations below its 20-year (FY06-25) average P/E. [[2]] The rationale for using 0.5 standard deviations below the average is to balance potential improvements in qoq net profit in 2Q25F with the still-cautious FY25F demand outlook for the group. [[2]] Previously, the P/E multiple was pegged at 12.1x, reflecting the EPS decline during the Global Financial Crisis spanning FY07-09 when Venture’s average P/E multiple de-rated to 12.1x. [[2]] The share price is expected to find support at its end-March 25 net asset value per share of S\$10.11. [[3]] Upside and Downside Risks Upside Risks: [[3]] New product launches by customers. [[3]] Better-than-expected revenue opportunities as businesses diversify production from China to Malaysia. [[3]] Downside Risks: [[3]] Potential supply chain disruptions affecting the availability of parts and components. [[3]] A worsening global economic outlook, potentially reducing orders from customers. [[3]] Further cuts to healthcare spending and grants to universities in the US, which could lower demand from its life science customers. [[3]] Key Financial Metrics and Ratios Current Price: S\$11.27 [[3]] Target Price: S\$10.97 [[3]] Previous Target: S\$10.13 [[3]] Up/downside: -2.7% [[3]] CGSI / Consensus: -10.1% [[3]] Market Cap: US\$2,497m or S\$3,242m [[3]] Average daily turnover: US\$6.43m or S\$8.55m [[3]] Current shares o/s: 289.1m [[3]] Free float: 92.9% [[3]] Major Shareholders Wong Ngit Liong: 7.1% [[3]] Schroders: 6.8% [[3]] Analyst Contact William TNG, CFA [[3]] T (65) 6210 8676 [[3]] E william.tng@cgsi.com [[3]] Financial Summary and Forecasts (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Revenue 3,025 2,736 2,634 2,659 2,672 Net Profit 270.0 245.0 220.5 242.0 252.3 Core EPS (S\$) 0.94 0.85 0.76 0.84 0.87 Core EPS Growth (26.9%) (9.5%) (10.0%) 9.7% 4.3% FD Core P/E (x) 12.12 13.33 14.77 13.46 12.91 Price To Sales (x) 1.07 1.19 1.24 1.23 1.22 DPS (S\$) 0.75 0.75 0.75 0.75 0.75 Dividend Yield 6.65% 6.65% 6.65% 6.65% 6.65% EV/EBITDA (x) 6.79 6.78 7.39 6.63 6.23 P/FCFE (x) 6.56 6.62 10.58 13.74 12.98 Net Gearing (36.3%) (44.4%) (47.6%) (47.8%) (48.4%) P/BV (x) 1.15 1.13 1.13 1.12 1.10 ROE 9.52% 8.56% 7.63% 8.33% 8.60% 1Q25 Results Summary (S\$m) 1Q25 1Q24 yoy chg 4Q24 qoq chg Comments Revenue 617 667 -8% 662 -7% 1Q25 revenue fell 7% qoq , 8% yoy due to lower demand from a key customer in the Lifestyle Consumer technology domain. 1Q25 revenue at 23% of our/Bloomberg consensus’s full-year forecasts was in line with expectation. Net profit 56 60 -7% 61 -8% 1Q25 net profit at 25% of our full-year forecast was in line with our expectation. 1Q25 net profit at 23% of Bloomberg Consensus’ full-year forecast was below consensus’ expectations. Net profit margin 9.1% 9.0% 0.1 % pts 9.2% (0.1) % pts 1Q25 net profit margin was maintained at 9.0% due to increase focus on operational efficiencies and productivity enhancements. Peer Comparison Company Bloomberg Ticker Recom. Price (lcl curr) Target Price (lcl curr) Market Cap (US\$ m) P/E (x) CY25F P/E (x) CY26F 3-year EPS CAGR (%) P/BV (x) CY25F Recurring ROE (%) CY25F Dividend Yield (%) CY25F Venture Corporation VMS SP HOLD 11.27 10.97 2,497 14.8 13.5 0.7% 1.13 7.6% 6.7% Benchmark Electronics BHE US NR 37.16 NA 1,341 16.0 14.2 na 1.21 7.8% 1.9% Celestica Inc CLS US NR 109.9 NA 12,698 21.7 17.9 25.7% 7.13 29.1% na Flextronics International FLEX US NR 41.85 NA 16,033 19.8 13.1 16.0% 3.11 21.3% na Jabil Circuit JBL US NR 167.0 NA 17,928 17.6 15.7 -9.5% 12.80 65.5% 0.2% Plexus Corp PLXS US NR 133.4 NA 3,612 19.1 17.3 9.3% 2.46 13.9% na Sanmina-SCI Corp SANM US NR 85.27 NA 4,559 14.7 na na 1.97 14.2% na Simple Average (US) 18.1 15.7 10.4% 4.78 25.3% 1.1% ESG Overview Venture Corporation maintains a C+ ESG Combined Score from Refinitiv from FY20 to FY22. [[3]] The company was recognized as Runner-up in the Most Transparent Company (Technology Category) award by the Securities Investors Association (Singapore) (SIAS) in 2022. [[3]] ESG Factors to Watch Customer Concentration Risk: [[3]] Venture faces customer concentration risk due to non-disclosure agreements, making it difficult to name major customers. [[3]] Based on the FY23 annual report, two major customers each account for over 10% of its revenue (FY22: 1 customer). [[3]] The loss of these customers could adversely affect Venture, although it is not assumed in current forecasts. [[3]] ESG Highlights: [[3]] Channel checks indicate Venture is involved in manufacturing e-cigarettes. [[4]] While the valuation methodology does not discount for e-cigarette involvement, some investors may be restricted from investing in companies with exposure to smoking. [[4]] Trends: [[4]] Venture’s primary energy source is electricity from the grid. [[4]] Carbon emission intensity by revenue increased from 25.17 TCO2e/S\$m in 2022 to 26.77 TCO2e/S\$m in 2023. [[4]] Measures to reduce electricity usage include replacing traditional lighting with LED and older air-conditioning systems with energy-efficient inverter-type units. [[4]] Key Balance Sheet Items (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Total Cash And Equivalents 1,056 1,317 1,408 1,428 1,462 Total Debtors 677 668 649 656 659 Inventories 823 686 535 540 543 Total Current Assets 2,605 2,727 2,648 2,680 2,720 Fixed Assets 273 278 276 274 271 Total Investments 26 43 43 43 43 Intangible Assets 641 640 640 640 640 Total Non-current Assets 950 973 971 968 966 Short-term Debt 9 12 12 12 12 Total Creditors 392 444 361 364 366 Total Current Liabilities 697 785 702 706 708 Total Long-term Debt 19 18 18 18 18 Total Non-current Liabilities 19 18 18 18 18 Total Liabilities 717 806 723 726 728 Shareholders’ Equity 2,834 2,890 2,891 2,916 2,952 Total Equity 2,838 2,894 2,896 2,922 2,958 Key Ratios and Drivers Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Revenue Growth (%) (21.7%) (9.6%) (3.7%) 1.0% 0.5% Operating EBITDA Growth (%) (29.9%) (11.1%) (12.4%) 10.3% 4.5% Operating EBITDA Margin 10.8% 10.6% 9.7% 10.6% 11.0% Net Cash Per Share (S\$) 3.54 4.45 4.77 4.84 4.95 BVPS (S\$) 9.76 10.00 10.00 10.09 10.21 Gross Interest Cover 408.9 227.3 292.6 327.1 343.7 Effective Tax Rate 18.2% 19.8% 18.0% 18.0% 18.0% Net Dividend Payout Ratio 66.0% 70.9% 80.6% 73.4% 70.4% Accounts Receivables Days 95.55 89.96 91.26 89.58 89.78 Inventory Days 152.8 136.4 114.1 99.5 99.8 Accounts Payables Days 74.84 75.47 75.11 67.07 67.22 ROIC (%) 14.6% 14.5% 14.2% 16.8% 17.6% ROCE (%) 11.3% 10.4% 9.1% 9.9% 10.2% Return On Average Assets 8.30% 7.31% 6.23% 6.99% 7.27%
