Venture

Venture - It share price tumble more than 12% from $28.82 to close at $25.29.



This could be due to:

" Shares in the cigarette giant plunged as much as 18 percent after its latest earnings report showed that $4.5 billion spent on four new products are failing to win over new customers. Sales growth of the iQos, a device that heats a tobacco plug without setting it on fire, has been slowing after initial success in Japan.

Philip Morris, which sells Marlboros outside the U.S., reported revenue excluding excise taxes of $6.9 billion, less than the $7.03 billion projected by analysts in a Bloomberg survey. The share decline, to as low as $83.50, was the biggest since the company split from Altria Inc. in 2008. The stock had fallen 4 percent this year through Wednesday’s close of trading. "

quote : https://www.bloomberg.com/news/articles/2018-04-19/philip-morris-sales-disappoint-as-cigarette-demand-slips-further

I think Venture could be one of the contract manufacturer for this iQos product for Philip Morris. I think the declining grow rate for this iQos product may affect their future earnings.

Looking through their financial numbers for the past 5 years, we can notice that the company has been able to consistently growing its Total Revenue from 2,329.551m in 2013 to 4,004.539m in 2017.
This is quite impressive.

Next , we take a look at the Net Income figure which has also been increasing from 131.13m in 2013 to 372.82m in 2017. An increase of almost more than 200%. 

EPS has also been growing at CAGR of 31% from $0.319 in 2013 to $0.943 in 2017. This is growing at a high double digits growth rate which is pretty encouraging.

The Total Assets has also been growing /increasing from 2013 to 2017 as per the table below:

This is a Net Net Position company as can be seen the total current Assets of 2,276.156m is more than sufficient to cover its Total Liabilities of 976.141m. Generally, the company has no problem to service it debts.

Ops cash flow is also very healthy which is clocking at CAGR of 40% as can be seen from the table below, the Ops cash flow in 2013 was 106.5m versus 448.5m in 2017. 

Return of Assets and Return of Equity has also been generally increasing from a low single digit grow to a high single digits grow of 9%. And 7.2% to 18% in 2017..This show that the company is capable of demostrating and enhancing the business value.

I have roughly workout the EPS intrinsic value using CAGR of 31% for past 4 years (2013 to 2017) and a discount factor of 12% ( MOS) , the fair value turns up to be around $24.65 .

Interestingly, i have also tried to workout the Ops cash flow intrinsic value using CAGr of 40% for past 4 years ( 2013-2017) , a discount factor of 12% , the fair value is about $24.00.

Therefore, in my view, the current price of $25.29 is trading at a premium level/ above it fair value.

Also the declining sales for iQos may also affect their rev going forward and it may also impact their fair value.

I think investor has to gauge for themselves whether to lock in profit or exit and wait for further insight for next few quarters results.

Dividend has increased marginally from 50 cents to 60 cents in 2017. Yield is about  2.03%

NAV of $7.08 ,  P/B is 3.38 times.


rolling EPS of 0.994, rolling PE of 24.08 times.

Not a call to buy or sell.

Please do you own due diligence.

Trade/Invest base on your own decision.

quote: Jeremyowtaip,I also dug through some historical financial information on Venture Corp. It gives me the impression that it's operating environment is challenging as revenues, operating profits, net profits have dipped over the past decade but recovered in recent years and especially the most recent FY17, the revenue, operating profit and net profit broke new record high.

The big question is whether going forward, can this global giant leader in the electronics and manufacturing service provider continue to grow and break even more record highs. By the outlook painted by the chairman and CEO in their FY17 annual report, it seems that they are positioning themselves in various areas they serve to foster growth. Their chief financial officer also mentioned in one of the article link below that their clients which are global leaders in electronics and manufacturing industries rely on Venture Corp for their strong R&D capabilities while the clients can focus on what they do best in their own businesses. Thus, the business model of Venture Corp is such that the various clients they serve will be sticky to Venture Corp. However, the chairman and CEO did pointed out that 2018 maybe a volatile year for them.

I am not sure what the chairman and CEO means by year 2018 maybe volatile. We do see a recent news of Philip Morris, one of the many clients which Venture Corp serves which is involved in selling IQOS (I Quit Ordinary Smoking) devices revealed in it's recent earnings call that their sales of IQOS may fall short of their ambitious expectations. According to Venture Corp's FY17 annual report based on the CIMB article link below, only one client accounts for more than 10% of Venture Corp's FY17 revenue of which CIMB thinks it is not Philip Morris. Therefore, this recent negative news will still impact Venture Corp's revenue this year 2018, but it is likely not a significant impact since the potential contribution to Venture Corp's revenue is not more than 10% of it's total revenue.

Venture Corp has strong balance sheet in a net cash position. It has been generating good amount of positive operating cashflows for the past decade. And it's required capital expenditures (capex) every year have been small resulting in high amount of free cashflows generated for the past decade every year. The small amount of capex requirement every year could be so as Venture Corp is more of a service provider for it's clients rather than a manufacturer, therefore it need not expend high capex to purchase a whole lot of plants and equipments.


I also checked up the compounded annual growth rate (CAGR) of it's diluted EPS over the past 5 years since it's profitability has improved over the past 5 years. Venture Corp has grown it's diluted EPS at a CAGR of 20.68% over the past 5 years. Since Venture Corp's latest FY17 performance was an exceptional year and I am not sure whether it can parallel such exceptional performance continually for the next 7 years of a business cycle, I will take a very conservative stance and estimate that it can only grow it's diluted EPS at CAGR of 6% for next 7 years upon it's current record breaking diluted EPS factoring in that the chairman and CEO mentioned before that 2018 is likely a volatile year for them. Therefore assuming this CAGR of 6% for it's diluted EPS going forward, using my method of estimation, I work out the fair share price of Venture Corp to be around $26.65. Based on one of the article link below by CIMB Research, their target price for Venture Corp is $30.81.

Venture Corp last closed at $25.29. Thus, I believe we are about there in terms of a fair share price for it. If an investor is worried whether the share price still has room for falling, then my suggestion is to wait for further price weakness to get it even cheaper or wait for the price to stabilise before buying. The cheaper one gets it below the estimated fair share price, the larger margin of safety one will receive to cushion the impact from Philip Morris affecting Venture Corp. Any further selling of the shares based on what I can see could be an over-exaggerated reaction to the impact from Philip Morris on Venture Corp's performance this year.

Venture Corporation Limited, together with its subsidiaries, provides technology services, products, and solutions in the Asia Pacific. The company operates through Electronics Services Provider, Retail Store Solutions and Industrial, and Components Technology segments. It offers manufacturing, product design and development, engineering, and supply-chain management services to the electronics industry. The company also designs, manufactures, assembles, distributes, and trades in electronic, mechanical, and computer related products and peripherals; manufactures and sells terminal units; develops and markets color imaging products for label printing; designs, integrates, and trades in electronic security systems; and develops and supports information systems. In addition, it engages in the provision of manufacture, design, engineering, customization, and logistics and repair services; manufacture, design, fabrication, stamping and injection, metal punching, and spraying of industrial metal parts, tools, and dies; and design, customization, and marketing of tool-making and precision engineering solutions. Further, the company manufactures plastic injection molds and moldings with secondary processes and subassembly; and provides manufacturing services to electronics equipment manufacturers, as well as offers management services. Additionally, it imports and exports electronic parts, components, equipment, devices, and instruments. Venture Corporation Limited was founded in 1984 and is headquartered in Singapore.