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Wed, Oct 21, 2020 – 2:13 p.m.
UPDATED Wed, Oct 21, 2020 – 2:45 pm
The share price of manufacturing services firm ELECTRONICS Venture Corp hit a 52-week high of S $ 21.21 on Wednesday morning.
RHB has also updated the counter to “buy” with a higher price target of S $ 22.60, from S $ 20.60 previously.
The counter started at S $ 20.85 on Wednesday, up 1 percent from the previous day’s close of S $ 20.65. It then gained 1.8 percent more in the first 40 minutes of trading to hit S $ 21.21, but fell slightly to end the first half of the trading day at S $ 21.08.
In a report Wednesday, RHB analyst Jarick Seet said the company should “chart a steady recovery” in the second half of this year with a brighter outlook.
“The company is now fulfilling its order book, while its research and development laboratory plans to launch some new products for the manufacturing segment in early 2021,” he said.
Despite the lower revenues, Mr. Seet noted that Venture is “working hard to maintain margins” by implementing more cost controls and improving production efficiency.
While median selling price pressures should align their rates to match end-market demand, Venture’s nonessential market segments may experience some pressure, given their lower recovery rate amid the Covid-19 pandemic. added.
For now, the brokerage said Venture’s production is unlikely to recover to pre-pandemic levels, given social distancing measures and restrictions. However, the growing diversification of the company’s clients is a strategy that is likely to pay off. Its top 10 customers now account for 45 to 55 percent of revenue, up from 50 to 60 percent previously.
In particular, Seet said Venture could take advantage of increased customer orders in industries such as life sciences, medical devices and equipment, networking and communications, and semiconductors.
He added that the company has also gained “significant traction” with new clients both year-over-year and quarterly.
Based on “stronger margins and stability” compared to its peers, RHB has now pegged Venture to a higher price-to-earnings (P / E) ratio in fiscal year 21F of 19 times from the previous 17 times.
Seet said that in terms of rewarding shareholders, the company prefers to pay out “stable and sustainable long-term dividends,” citing its highest interim dividend of S $ 0.25 per share for the first half of this fiscal year, in compared to S $ 0.20 per share in the period a year ago.
Assuming Venture’s final dividend remains unchanged from last year, the group’s FY20F dividend will likely rise to S $ 0.75 from S $ 0.70 in FY19, representing a return of 3.6 %.
“We believe this is very sustainable, and investors should continue to enjoy higher dividends going forward, if the company’s performance continues to improve,” said Mr. Seet.
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