Venture Corp near multi-year lows. Is it a bargain?

What happened?

Venture Corporation has seen better days. Shares of the blue-chip contract manufacturer have fallen nearly 28% year-to-date to reach a multi-year low of S$12.60 recently. 

Together with OUE Commercial REIT and Keppel Pacific Oak US REIT, Venture Corp is one of the beaten-down stocks in the Singapore market this year. In fact, Venture Corp is now trading below that of its lows during the Covid-19 pandemic in 2020. 

The group is facing several challenges that have invited significant pessimism from investors.

Could the group’s shares be ripe for a rebound? We dig deeper to find out.

What is driving weakness in Venture Corp's share price?

Venture is recognised as a leader in contract manufacturing with deep know-how and expertise in sectors such as life sciences, genomics, medical devices, network and communications, and luxury lifestyle and wellness technology, among others.

It counts more than 100 global companies as its customers and employs around 12,000 staff.[1] 

Venture Corporation, along with other companies within the semiconductor and microchip manufacturing space, is faced with several headwinds resulting in weak sentiment for the sector.

#1 – The contraction of Singapore’s non-oil domestic exports

Singapore reported a 20.1% year on year contraction in its non-oil domestic exports (NODX) for August.

This was the 11^th consecutive month where NODX fell following a 20.3% decline in July and a 15.7% fall in June.

The 20.1% contraction was also worse than the 15.8% drop forecast by a Reuters poll.

In particular, electronic product exports contracted by 21.1% for August, a smaller decline compared to the 26.1% fall in July.

Three categories contributed most to this decline, namely integrated circuits (-28.5%), disk media products (-30.6%), and personal computers (-25.6%).

China’s weak economy was partly to blame for Singapore’s weak NODX numbers, with the largest chipmaker in the world, TSMC, reportedly telling its suppliers to delay delivery of high-end chipmaker equipment on customer demand concerns. 

The US and European Union (EU) were also the two largest contributors to the NODX fall.

With Venture Corporation being a contract manufacturer for a wide range of industries that rely on end-consumer demand, the fall in NODX has no doubt cast a pall on the sector.

#2 – The cyclical downturn in the semiconductor industry

Apart from the weak NODX numbers, investors are also grappling with a downturn in the semiconductor industry.

The sector is known for being notoriously cyclical and the previous boom and surge in demand was led by the onset of the COVID-19 pandemic.

With the reopening of economies and resumption of air travel, demand for electronic devices has also normalised after a sharp increase.

The World Semiconductor Trade Statistics (WSTS) has predicted a 10.3% year on year decline in the worldwide semiconductor market to US$515 billion.

This decline follows a 3.3% year on year increase for 2022.

WSTS, however, anticipates a strong rebound with an estimated growth rate of 11.8% year on year for 2024.

Another useful data point is provided by the slide above which shows the projections for total semiconductor equipment spending by SEMI, a global industry association representing the electronics manufacturing and design supply chain that has more than 3,000 members worldwide.[6] 

SEMI projects that sales of both semiconductor manufacturing equipment and wafer fabrication equipment are poised to fall by 18.6% year on year and 18.8% year on year, respectively, for 2023.

However, both categories of spending should see a robust rebound next year.

These two data points imply that the current downturn is cyclical and should be followed by a period of increased demand.

However, it is nearly impossible to ascertain the timing of this rebound and to determine its magnitude other than relying on forecasts by WSTS and SEMI.

#3 – A weak set of earnings

In line with the industry downturn, Venture Corporation reported a downbeat set of earnings for its 2023 first half (1H 2023).

Revenue dipped by 11.9% year on year to S$1.6 billion while net profit tumbled 19.7% year on year to S$140 million.

Despite the weaker earnings profile, Venture managed to more than quadruple its free cash flow from S$47.8 million in 1H 2022 to S$229.4 million in 1H 2023.

It also maintained its interim dividend of S$0.25.

What would Beansprout do?

In the near term, Venture appears to be facing challenges from the weak demand for electronic equipment, which has translated to a lower profit in the first half of 2023.

However, investors who have a longer time horizon may be able to find more positives.

Back in May, the group announced a restructuring of its main business groups and appointed separate CEOs to head each of its major divisions.

Venture has also undertaken new initiatives to drive revenue and profitability improvements by proactively working with customers and partners who are actively seeking alternative manufacturing bases within Southeast Asia.

Venture has reported good traction in new customer acquisition along with new product introduction with opportunities present to scale the business further.

In the meantime, Venture has paid a consistent annual dividend per share of S$0.75 since 2020. This would translate to a dividend yield of 5.9% based on its share price of S$12.67 as of 27 September. 

Let’s not forget that the cyclical downturn may see a rebound soon with both WSTS and SEMI forecasting a better 2024.

Based on forecasts by analysts, the consensus target price of Venture Corp is S$16.19 as of 27 September 2023. This is close to 28% above its share price of S$12.69 as of 27 September 2023.

For investors who are looking for stocks offering a dividend yield above the STI, and have the patience to wait for an eventual recovery, it might be worthwhile adding Venture Corp to your watchlist. 

Related links

• Venture Corp share price and analysis
• Venture Corp dividends

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