Venture Corporation: Navigating Weaker Demand

Venture Corporation reported a disappointing 9M24 performance with revenue at S\$2,073.9m, witnessing a year-on-year decline of 9.4%. This figure accounted for 68.1% of CGS International’s forecast and 67.3% of Bloomberg consensus for FY24. Net profit also saw a decline, landing at S\$184.3m, down 9.3% year-on-year, forming 66.9% of the forecast.

For 3Q24, revenue fell by 3.9% quarter-on-quarter to S\$689.7m due to reduced demand in the Life Science, Lifestyle Consumer, and Test & Measurement Instrumentation segments. However, this decline was partially offset by gains in the Networking & Communications and Semiconductor Related Equipment segments. Net profit for 3Q24 fell by 4.7% to S\$60.6m, maintaining an 8.8% net profit margin. Operating cash flow was robust at S\$393.8m, with the company ending the quarter with net cash of S\$1.19bn.

In light of these results, Venture has revised its 2H24 revenue outlook to be stable compared to 1H24, deviating from the previous guidance of stronger 2H24 revenue. Despite this short-term outlook, Venture remains committed to its strategy of leveraging R&D for revenue opportunities and targeting 8-10% pre-tax margin opportunities. Future growth areas include AI data centers, semiconductor-related products, life sciences, and medical technologies. The company continues to innovate with proprietary modules for customer integration, with several patent applications filed.

Given the revenue miss, CGS International has reduced its FY24-26 EPS forecasts by 9.45%-11.65%, resulting in a lower target price of S\$14.34, based on a 14.6x FY25F P/E. Key re-rating catalysts include new product launches and better-than-expected revenue opportunities. However, potential risks include supply chain disruptions, labor shortages, and a worsening global economic outlook.

AEM Holdings Ltd: Mixed Prospects Ahead

AEM Holdings Ltd is currently rated as ‘Reduce’ by CGS International with a target price of S\$1.27. The company has a market cap of US\$310m and trades at a 40.3x P/E for CY24F, dropping significantly to 9.9x for CY25F. Despite this, AEM shows a remarkable 91.4% EPS growth CAGR over three years. The recurring ROE is 0.86% for CY24F and 0.80% for CY25F, with a dividend yield of 2.1%.

Aztech Global Ltd: Resilient Yet Cautious

Aztech Global Ltd holds a ‘Reduce’ rating with a target price of S\$0.78. The company’s market cap stands at US\$405m, with a P/E of 7.7x for CY24F and 7.6x for CY25F. Despite facing an EPS CAGR of -8.6% over three years, Aztech boasts a high dividend yield of 20.1%, underscoring its commitment to returning value to shareholders.

Frencken Group Ltd: Steady Growth Expected

Frencken Group Ltd is rated ‘Add’ with a target price of S\$1.55. The company has a market cap of US\$391m and trades at an 11.8x P/E for CY24F, improving to 10.9x for CY25F. With a three-year EPS CAGR of 19.5%, Frencken demonstrates strong growth potential, complemented by a recurring ROE of 1.19% for CY24F and 1.10% for CY25F, and a dividend yield of 10.5%.

ISDN Holdings Ltd: Moderate Outlook

ISDN Holdings Ltd carries a ‘Hold’ rating with a target price of S\$0.28. The company’s market cap is US\$107m, with a P/E of 17.7x for CY24F, improving to 12.4x for CY25F. ISDN shows a three-year EPS CAGR of 37.8%, with recurring ROE of 0.69% for CY24F and 0.66% for CY25F, and a dividend yield of 3.9%.

Nanofilm Technologies Int’l Ltd: High Valuation Concerns

Nanofilm Technologies Int’l Ltd is rated ‘Reduce’ with a target price of S\$0.69. The company has a market cap of US\$397m, with a high P/E of 57.1x for CY24F, dropping to 17.3x for CY25F. Despite a substantial three-year EPS CAGR of 125.2%, the high valuation raises concerns. The recurring ROE is 1.36% for CY24F and 1.28% for CY25F, with a modest dividend yield of 2.4%.

Venture Corporation: Reaffirming Strength Amid Challenges

Venture Corporation, rated ‘Add’ with a target price of S\$14.34, has a market cap of US\$2,987m. The company trades at a 16.3x P/E for CY24F, improving to 13.9x for CY25F, with a modest three-year EPS CAGR of 4.3%. Venture boasts a high recurring ROE of 1.38% for CY24F and 1.35% for CY25F, and a robust dividend yield of 8.5%, reflecting its strong cash flow and commitment to shareholder returns.

ESG Considerations: Emphasizing Transparency and Sustainability

Venture Corporation maintains a C+ ESG Combined Score from Refinitiv, unchanged from FY20 to FY22. The company was recognized as a Runner-up in the Most Transparent Company Award (Technology Category) by the Securities Investors Association (Singapore) in 2022.

Key ESG highlights include customer concentration risk, with two major customers each accounting for more than 10% of revenue in FY23. The company is also involved in manufacturing e-cigarettes, which may deter some investors despite not impacting the valuation methodology. Venture’s carbon emission intensity increased from 25.17 TCO2e/S\$m in 2022 to 26.77 TCO2e/S\$m in 2023. Measures to reduce electricity usage, such as energy-efficient LED lighting and inverter-type air-conditioners, have been adopted.

Financial Summary: A Detailed Overview

Conclusion

The tech manufacturing services sector faces a mixed outlook with varying degrees of challenges and opportunities. Venture Corporation, despite short-term hurdles, continues to innovate and maintain strong fundamentals. Other companies like AEM Holdings, Aztech Global, and Nanofilm Technologies exhibit distinct prospects, influenced by market conditions and strategic initiatives. ESG factors also play a crucial role in shaping investment decisions, emphasizing the need for transparency and sustainability.