Venture Corporation - On track to recovery

We raise Venture’s sales estimates for 2009/10/11 by 1.1%/1.6%/2.0% factoring in the expansion of its printing and imaging fulfilment services from Asia to other regions. Our checks with Venture’s management give us confidence that it will maintain its margins. Additionally, we expect Venture to benefit from increased contribution from several Original Design Manufacturing (ODM) projects in its sales in 2010 and beyond.

Our review of Q109 results of Venture’s key clients broadly suggests a cautious outlook. Its printing and imaging client, HP indicated sluggish IPG demand, while its storage business clients EMC and IBM reported weakness. Agilent, its test and measurement client guided for around 25% YoY sales decline in 2009. However, in the RSS business, the outlook was relatively positive from Hypercom and Micros Systems.

Contrary to the market perception that Venture lost its HP business to Hon Hai, our checks confirm that it was Cal-Comp that was actually losing business to Hon Hai. We continue to believe that Venture’s business model is defendable, given its diversified product mix as well as client mix, apart from its focus on delivering high-value added services.

We raise 2009E/10E/11E EPS from S$0.51/S$0.65/S$0.69 to S$0.57/S$0.72/ $0.77 factoring in potential sales and margin upsides. We maintain our Buy rating and raise our VCAM-based price target from S$7.2 to S$8.0.

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