Venture - optimism into 2H, uncertain growth trajectory

Venture reported June-quarter revenue of S$846.0 mn (-13% YoY, +17% QoQ), and net profit of S$60.9 mn (-7% YoY, +120% QoQ). Excluding gains on its CDO portfolio (S$25 mn) and forex losses then, core earnings at S$37.1 mn were in line with our estimates.

All business segments saw sequential improvement in sales (up 7-37%), with the exception of test/measurement/others (-3% QoQ), which continued to reflect industry over-capacity, and anaemic capex spend.

Gross margins fell from 20.5% to 15.5% YoY, on less favourable mix (HP’s full product configuration model contribution), coupled with pricing pressure. Working capital management stayed tight, which drove S$72 mn in operating cash flow, and helped Venture end the quarter on a S$219 mn net cash balance sheet.

Despite optimism from Venture’s clients on 2H09 prospects, the growth trajectory remains uncertain, and hence we have kept our forecasts largely intact. With the stock’s outperformance so far, and limited upside to our 13x P/E S$9.25 target price, we downgrade our rating to NEUTRAL (from Outperform).

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