Twelve of its popular customers are bullish on outlook and revenue.
Venture Corporation share price shed 25% since its April high, due to cyclical concerns and operational “opacity.” However, Maybank Kim Eng noted that its customers remain confident about their 2018 prospects, anchored by robust capex spending, especially in the US.
“This corroborates what Venture has been sharing, that forecasts from its customers are healthy. We believe Venture remains a beneficiary of economic upcycle and multifaceted secular growth drivers,” said Maybank Kim Eng analyst Lai Gene Lih.
Its top 20 customers make up for 80% or so of its revenue. Maybank KE noted that of its 16 well-known customers, 10 beat Street estimates. “Twelve have raised or reaffirmed their guidance. Consensus revenue for most of these customers has been raised for FY2018/2019,” he said.
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Lai noted that the demand for its test & measurement (T&M), medical & life science (M&LF), and industrial product (IP) customers appears the strongest.
Its customers’ recent results were underpinned by cyclicality. “Industrial customers such as Honeywell and ABB are riding a firm capex cycle. In printing & imaging, customer HP has raised its FY2018 guidance three times, suggesting cyclical strength amidst longer-term secular decline,” the analyst added.
There also appears to be secular growth for its T&M and M&LF customers. Lai added, “T&M customer, Keysight, has raised its organic long-term revenue-growth expectations by 1ppt to 4-5%, supported by developments in 5G, IOT, automotive electrification and automation. M&LF customers like Agilent, Thermo Fisher and Illumina are apparently benefiting from corporate, government and academia spending to address food-safety and population-ageing concerns, plus prospects for high-throughput genome sequencing.”
Meanwhile, growth from Venture’s customers in Retail Store Solutions’ (RSS), albeit muted, is stable. “Customers like VeriFone and NCR have not changed their guidance, suggesting a stable outlook. This cluster of customers is experiencing high-base effects due to policy-induced demand in India and Europe in 2017,” Lai said.
Generally, Venture’ customers have been benefiting from a strong and expanding US economy. “A downtrend in the US durable-goods inventory to shipment ratio suggests the capex cycle remains firm. Global chip sales, a leading indicator of electronics demand, were up 19.8% YoY in March,” the analyst added.
Singapore electronics production also grew 11.3% YoY in April. In Malaysia, where around 65% of Venture’ workforce is based, electronics exports increased 27% YoY in 1Q2018.
Risks include possible wage hikes in Malaysia, higher logistics costs, and a deterioration in its customers’ outlook if trade tensions escalate.
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