Venture Corporation: No surprises

Core results in line. Bottomline of S$60m included S$4m of forex losses and S$25m of CDO marked-to-market gains, without which, core profit would be S$37m. Sales contracted 13% yoy but grew 17% q-o-q to S$846m, ahead of our S$766m forecast. All businesses grew except Test & Measurement. Printing & Imaging was the outperformer with a 33%y-o-y and 37% q-o-q rise but the increased portion of turnkey projects did not result in margin improvement. Core net margin was firm on the quarter at 4.4% but fell 2.7% pts y-o-y.

S$25m CDO marked-to-market gains has raised Venture’s CDO to 12.3% of host value (S$168m) from 6.5% in Q1.

Rock solid balance sheet with S$219m net cash. Venture tightened working capital further as cash conversion shrank to 60days (1Q09: 75, 2Q08: 70), generating over S$60m of positive FCF.

M-o-m growth in 2H is expected but with little margin improvement as turnkey model continues to dominate. In fact, our industry checks indicated that the withdrawal of low value HP printers was deferred. More positively, Venture has won more new customers in Q2 than the whole of last year. Most of these new engagements (digitized receivers, Minetracer, aerospace, industrial etc) entail higher value added services and would start contributing in FY10.

Keeping forecast and S$9.40 TP. Excluding CDOs, Venture has achieved 45% of our FY forecast at half time. We are confident the company remains on track to meet our expectations with a seasonally stronger 2H. Maintain buy with unchanged TP of S$9.40 (15x blended FY09/10 PE).

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