Venture Corporation: Stronger momentum boosts upside

Recovery underway. Our latest company update points to higher momentum throughout Q2 (except for RSSI and TMI), as customers stock up ahead of the buying season in 2H. This sequential growth, we believe, will sustain through 4Q09, bolstered by seasonality & demand recovery, which is underpinned by incrementally positive macro development. Contrary to market concerns of erosion at Printing & Imaging, P&I appears to be outperforming as Venture, through full configuration offering, continues to strengthen its position with HP in existing and new platforms.

Margin pressure short term pain, long term gain. We were previously concerned by the sharp plunge in margin as Venture switched to full turnkey for HP in Q1. However, as Venture continues to secure new ODM platforms from this customer, we appreciate that full turnkey is the last mile solution necessary to complete the total value chain management, which ultimately would enable Venture to strengthen customer alliances and stickiness in the long term. For Q2, we expect net margin to inch up 0.5%pt q-o-q to 4.8%.

Upgrade to Buy, revised TP to S$9.40 from S$6.50 previously. In tandem with a higher profit forecast and a rollover to average valuation peg of 15x PER (vs previous peg of 1SD valuation of 11x PER), our new target price is S$9.40, translating to 15% price upside.

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