Despite lower revenue in other segments, P&I revenue rose 6% yoy to 35% of sales in 1Q09. Officially, a key customer shifted to a new supply model with little profit margin. It seems likely the customer was trying to lighten its balance sheet, a common practice for publicly-listed manufacturing companies that need to “improve” their numbers before reporting financials. We note Venture’s inventory fell only 12% yoy compared to the 23% decline in sales). If so, the growth is likely to be a blip.
Although sentiment remains weak for the most part, management pointed out that some customers’ forecasts improved during the quarter, suggesting that they had over-reacted to the economic downturn and are now restocking their channels. In the near term, management reported that monthly orders continue to improve after bottoming out in Jan-Feb. Sequentially, 2Q09 should show improvement over 1Q09.
Despite the relatively high inventory levels, balance sheet strength continued to improve qoq and yoy. Net cash rose to $304m or $1.11/share (vs net debt of $25m in 1Q08, net cash of $192m in 4Q08) despite repaying $37m in borrowings during the quarter. Management is still not satisfied, believing that there is further room for improvement, especially in the area of payables.
There is a significant gap between Venture’s share price performance to-date and the tech stocks in Taiwan, suggesting there is room to play catch-up, especially since industry newsflow remains relatively positive. Further, with Venture’s balance sheet still on the mend, we reckon the dividend yield of 8.4% at current levels is safe. We therefore maintain BUY on the stock with a price target of $6.64 based on 10x forward EPS.
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