Very strong cash flows. Inline with our expectations, Venture continued to pare down its debt and has now S$1.11 in net cash per share that translates to 18.6% of market cap. More importantly, despite this current market downturn, Venture had managed to boost its net operating cash flow tremendously from S$5.6m in 1Q08 to S$99.1m in 1Q09 due to effective cash management skills – this in turn equates to positive FCF per share at S$0.353, notably higher than its 1Q09 EPS at S$0.101. We therefore continue to believe that our forecasted year-end dividends of S$0.50 are also achievable.
Short-term outlook is improving. Venture had mentioned that its 1Q09 numbers were mainly affected by a dull month during Jan 09. However, it added that a pick-up had happened during Feb and Mar due to the replenishing of inventories. Furthermore, management added that forecasts given by several of its clients have been good and therefore would be expecting a better 2Q. However, Venture also professed that as it does not know how long this recovery can last, it would choose to be cautious.
Recommendation. With Venture’s strong cash flow generating attributes, sustainable dividend yield of 8.4% and an improvement in its macro-outlook for at least the short-term, we maintain our BUY recommendation. Additionally, we have chosen to peg a 2.0% terminal growth rate to our dividend discount model as we believe that our previous assumptions at 1% have been too conservative given that the main drag on its profitability (the CDOs) have largely been removed going forward. Our target price is accordingly raised to S$6.72, from S$5.92 previously.
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