Here's why Venture can't be knocked off top spot

Even amid bearish cash count of S$264.4m.

According to OCBC, 2012 has been a challenging year for Venture Corporation (VMS) and the tech sector in general.

Here's more from OCBC:

While previous expectations of a stronger 2H are unlikely to materialise in FY12 given the continued macroeconomic uncertainties, we remain positive on VMS’s healthy financial position and competitive strengths vis-à-vis its peers.

The group had a net cash position of S$264.4m as at 30 Sep 2012, while S$86.6m of free cashflows were also generated for 9M12.

Although VMS has plans to complete the purchase of a flatted factory building for S$38m in FY13, this would be funded by internal resources and we do not foresee an impact to our 55 S cents FY13 dividend forecast given VMS’s strong cash position. VMS also has a diversified customer base across five broad business segments and the group manufactures more than 5,000 different products.

It has continuously strived to move up the technological value chain via its design and engineering capabilities, which explains why it is able to command stronger margins than its global peers.

We expect contributions from newly acquired customers and the ramp-up of new programmes (partly due to product refresh cycle) to boost VMS’s margins and earnings in FY13, as product launches typically offer an opening window of opportunity for higher margins to be captured.

This includes certain industrial, networking and communications, test and measurement and life sciences products.

Current valuations for VMS are undemanding, in our opinion, with the stock trading at 12.9x FY13F PER, or approximately half a standard deviation below its 5-year average forward PER.

We recommend VMS as our top tech sector pick for 2013. Key risks to our estimates include a significant deterioration in the macroeconomic outlook and slower-than-expected ramp up in new programmes.

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