DBS cuts Venture Corp price target after Q1 earnings miss

DBS Group Research has lowered its price target for Venture Corp to S$16.40 from S$16.90 previously after the technology solutions provider posted weaker-than-expected financial earnings for the first quarter ended Mar 31.

The lower price target is a result of reduced net profit forecasts by the research house, which have been lowered by 6.1 per cent for FY2024 and 6.4 per cent for FY2025.

Its net profit margin expectations have also been trimmed by 0.2 percentage point to 9.1 per cent for FY2024 and 0.3 percentage point to 9.2 per cent for FY2025.

DBS also lowered its revenue estimates by 3.7 per cent for FY2024 and 3.2 per cent for FY2025.

The revised price target nonetheless implies an unchanged 16 times price-to-earnings ratio, based on the research house’s blended FY2024 and FY2025 earnings estimates.

Despite the lower price target, analyst Ling Lee Keng expects sequential improvement in the company’s revenue and a better second half for FY2024 compared to the first half of the fiscal year.

“This observation is in line with our view of a more significant recovery for the downstream players in H2 or the end of FY2024,” said the analyst.

DBS has reiterated its “buy” call on the stock, while also projecting Venture’s earnings per share (EPS) to increase from S$0.928 in FY2023 to S$0.991 in FY2024, and S$1.06 in FY2025.

In Ling’s view, Venture’s strategy to work closely with data centre players and establish itself in Singapore’s data centre ecosystem would be a “key growth area” for the company in the long term. This is because the qualification and testing process usually takes time, she noted.

The technology solutions company is in a “sweet spot” to benefit from the China Plus One business strategy, she added, noting that a growing number of companies are setting up operations outside of China to build an ecosystem in South-east Asia.

“Venture’s technological capabilities and its competitive edge enable the group to provide higher value-add activities for its customers in a sustainable and scalable way. This would enable the group to increase both market and wallet share, and create more value for its customers,” said Ling.

CGS International also maintained its “add” call on Venture while reiterating its price target of S$15.93, despite noting that the company’s first-quarter earnings were below the expectations of both the research house and Bloomberg consensus.

This is because Venture’s earnings “could catch up” with CGS’ estimates in the subsequent quarters, said analyst William Tng in a report last Friday. He has left his near-term forecasts for the company unchanged, and continues to expect Venture’s EPS growth to resume from FY2024 to FY2026 with an estimated 5.28 per cent dividend yield over the same period.

Venture shares ended 1.5 per cent or S$0.21 lower at S$14.25 on Monday.