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Venture Corporation
July 30 close: $9.19
OCBC INVESTMENT
RESEARCH, July 30
VENTURE Corp (VMS) will be reporting its Q2 2009 results on Aug 7 and after a very tough first quarter, VMS could likely provide a positive surprise in both its Q2 2009 revenue and bottomline, despite it being a traditionally slower quarter.
We note that the industry-wide inventory restocking activities have extended well into May, given the severe depletion in the supply chain in Q4 2008 and Q1 2009. In addition, we understand that VMS has continued to add new customers in its ODM (original design manufacturing) business. Hence we believe it should lead to further improvement in its profitability.
Another positive surprise could come from its CDO2 investment, which VMS had already almost fully marked down from the original $167.8 million to just $10.9 million as at end-Q1 2009.
We understand that the credit markets have thawed somewhat since then and we can expect potential write-backs from even as early as Q2 2009. However, we prefer to remain conservative and only adjust our numbers if/when it get its full investment back by end-December 2009. When it gets back the full amount, we believe that unless VMS has a pressing need for the funds, it could potentially pay it out as a special dividend that is worth at least $0.50 per share.
For the second quarter, we are expecting VMS to post a q-o-q improvement of 7.5 per cent in revenue and a jump of 14.7 per cent in net profit.
While we believe that the recession has bottomed, the road to recovery could still be a long and arduous one. As such, we will hold off adjusting our FY2009/2010 estimates until we see the Q2 results and get a better sense of its customers' outlook from management.
Meanwhile, the
recent revaluation of the market has also led us to revise up our valuation for
VMS, shifting from a very conservative FY2009 PER of 8 previously to a more
upbeat blended FY2009/FY2010 PER of 12.5. This raises our fair value from
$5.64 to $9.26. Coupled with an expected dividend yield of 5.8 per cent (not
including a potential special dividend), we upgrade our rating from 'hold' to
'buy'.
BUY
Singapore Property
DMG & PARTNERS
SECURITIES, July 30
MINISTER Mah Bow Tan's comments on the presence of speculative signs in the property sector indicate that the government is increasingly concerned over the buoyant property market.
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If the government acts, we believe the minister's comments suggest a change from demand-oriented to supply-oriented anti-speculative measures, similar to the 1990s, which would be less negative for the market. Subsequent to a proposed tax amendment a few weeks ago, property counters fell 3 per cent over one day, while property stocks eased 4 per cent when a slew of anti-speculative measures were announced in May 1996. We are cautious, but are maintaining our 'overweight' call on the property sector, with City Developments as top pick given its broad-based residential portfolio.
Following its proposed income tax amendment on July 8, 2009, we believe that Mr Mah's comments provide further evidence that the government is becoming increasingly concerned over the buoyant property market. We reckon this is a result of massive take-up of two-bedders for all new projects, overnight queues and blank cheques for choice units and primary launch prices at significant premiums to nearby completed projects, even for mass projects.
By our estimates, new launches for
mass projects are now fetching prices above Q4 2007's peak in terms of $ per
square foot basis. While absolute quantum remains within a comfortable range
of less than $900,000, price sensitive buyers here could be deterred by further
hikes. As such, we guess that the government's ultimate policy (if any) could
focus on mass projects remaining affordable to genuine owner-occupying buyers.
As such, this could imply similarities to the 1990s where the GLS programme was
stepped up. Removal of IAS is unlikely given the increasing preference of
buyers for NPS due to its slight 2-5 per cent discount over the former.
OVERWEIGHT
Compiled by JOYCE HOOI
Glossary:
Ebit - earnings before interest and tax
Ebitda -
earnings before interest, tax, depreciation and amortisation
EPS -
earnings per share
FY - fiscal/financial year
H1, H2 - first or
second half
NAV - net asset value
9M - nine months
P/B -
price/book value (ratio)
PE - price/earnings (ratio)
Q1, Q2, Q3 -
first, second, or third quarter
q-o-q - quarter-on-quarter
RNAV -
revised net asset value
ROE - return on equity
TP - target price
y-o-y - year-on-year
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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