Venture Corp gearing up for a banner second half

Watch out for a revenue rally later this year as its new products launch and customers start doubling down on orders, says DBS.

While macro worries have dragged on Venture sales in the first quarter, DBS said based on most recent earnings reports, the company's new customers like Qualcomm and Oclaro are expected to ramp up their purchases in the coming quarters.

Here's more from DBS:

Profits broadly in line despite lower than expected sales. Venture reported 1Q12 sales of S$574.3m (-2% y-o-y, -9% q-o-q) and net profit of S$35.5m (-14% y-oy, -7% q-o-q) compared to our forecast of S$36.7m. On a y-o-y basis, only Retail Store Solution & Industrial segment recorded sales growth due to strength in RSSI customers and additional flows of cash management and authentication products out of Shanghai. Sequentially, networking and communications revenue rose but other segments dipped on seasonal weakness. However, Venture managed to keep to a net margin at 6%, slightly down from 7% in 1Q11 and flat compared to 4Q11.

Net cash is steady at S$306m but cash conversion cycle stretched to 101 days from 94 days in 4Q11, mainly due to higher inventory ahead of production ramp up in the future quarters and the transfer of components from Oclaro, which is fully outsourcing production at its Shenzhen plant to Venture in Malaysia. As a result, inventory days rose to 84 from 73 last quarter but still lower than 92 days last year. Based on historical trend, we believe Venture has strong discipline to manage and improve on its working capital going forward.

Our View. Seasonal improvement in 2Q, much stronger in 2H. Although business momentum was slightly weakened by macro uncertainties which also affected the expected ramp up of products from the new Printing & Imaging segment launched late last year, customers are maintaining positive projections into 2H. In addition to gradual ramp up of new products, stronger customer traction would also help. Upside is contingent on pull of new products and rate of order momentum from new customers such as Qualcomm and Oclaro.

1Q12 forms 20% of FY12F. This is in line with historical trend of 1Q accounting for 20-25% of full year earnings. Hence, we are maintaining our profit forecast for Venture.

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