BROKERAGES trimmed their target prices for Venture Corporation : V03 0% after the electronics manufacturing company released its financial results for the second-quarter and first-half period of 2023 last Friday (Aug 4).

Several analysts said they are now expecting weaker near-term earnings, but remained optimistic on the company’s overall growth trajectory on its healthy cash balance and sustainable dividend yield, as well as an anticipated sector recovery.

Maybank Securities analyst Jarick Seet lowered his target price on the stock to S$14.30 from S$15.40 previously, after lowering net profit after tax forecasts for FY2023 and FY2024 by 9.5 per cent each to reflect a drop in projected revenue and margins.

The analyst expects the company to maintain its future dividends at present levels, despite a “much weaker” FY2023.

“Investors will likely be paid to wait for a turnaround,” he added, while highlighting the group’s healthy net cash position with no bank borrowings.

The lower near-term estimates are based on Seet’s assumptions for muted profit margins in H2 FY2023, which he said “will likely incur a hit” amid geopolitical tensions and weaker macro demand, as flagged by the company’s management.

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Seet reiterated his “hold” call on Venture, and said he prefers Aztech Global due to strong orders from its key customer. 

Similarly, UOB Kay Hian (UOBKH) lowered its target price for Venture to S$14.60 from S$16.99 upon trimming its FY2023 estimates by 12 per cent, followed by another 12 per cent reduction to FY2024 projections.

The brokerage also lowered its earnings estimates for FY2025 by 11 per cent.

These reduced estimates account for near-term demand weakness, a challenging macro environment and lower operating leverage given weaker anticipated revenue, said UOBKH.

While UOBKH expects Venture to face continued soft demand in the second half year, it continues to rate the stock at “hold” while highlighting the company’s efforts to improve its profitability.

Phillip Securities also lowered its target price on the company to S$15.20 from S$17.10 after cutting its FY2023 Patmi (profit after tax and minority interests) forecasts down by 5 per cent, with revenue estimates reduced by 8 per cent.

Phillip analyst Paul Chew noted that Venture in its latest set of earnings registered a higher composition of interest income at 7 per cent, compared to 2 per cent during the same period last year.

He remained “neutral” on the stock.

“Valuations and dividend yield of 5.2 per cent have turned more attractive, but there is little visibility of a recovery in the near-term,” said Chew.

Citi Research trimmed its target price to S$17.60 from S$19.00 after reducing its earnings per share (EPS) FY2023 to FY2025 forecasts by 11 per cent.

The research house, however, maintained its “buy” call on the stock as it remains optimistic about the company’s long-term growth prospects despite near-term uncertainties, with the belief that the weakening of demand has bottomed.

Citi analyst Jame Osman noted that the stock’s valuations appear “undemanding” considering its strong balance sheet and “sustainable” dividend yield of over 5 per cent.

“Despite the subdued tone (of Venture’s management), we believe industry data points suggest that H1 FY2023 could mark the bottom, and we expect a stronger 2H FY2023 half-on-half performance overall,” he said.

In his view, Venture remains a structural beneficiary of supply chain relocation trends, which favour outsourced manufacturing. The company also made efforts to diversify its customer base into growth domains, he added.

Unlike Citi which remained optimistic on Venture’s H2 FY2023 and FY2024 prospects, CGS-CIMB said the group’s H2 results will not see the usual seasonal boost as the global outlook remains uncertain.

The brokerage also lowered its EPS forecast for FY2024 to S$1.10 from S$1.20 on ongoing demand weakness, bringing Venture’s price target down to S$16.80 from S$18.11.

It nonetheless continues to rate the stock at “add” given the group’s attractive 5.2 per cent dividend yield and potential for EPS growth to resume in FY2024 to FY2025.

Venture was trading down 3.0 per cent or S$0.43 at S$13.95 as at midday market break on Monday.