Venture Corp (VMS) will report its second quarter result in August 7. After experiencing a very difficult first quarter, VMS is expected to give a positive output in its revenue during the second quarter of 2009 and bottomline, although it was a usual slower quarter.
OCBC Investment Research notes that the extensive inventory restocking activities in the industry have extended properly into May, taking into account the intense reduction in the supply chain during the fourth quarter of 2008, and in the first quarter of 2009. Additionally, OCBC understands that Venture Corp has continued in adding new clients in its original design manufacturing (ODM) business. Hence, this should lead to more development in its profitability.
CDO2 investment could provide another positive surprise, which Venture Corp had almost fully reduced down from $167.8 million to $10.9 million as of the end of the first quarter of 2009.
The credit markets had melted down reasonably since then and potential write-backs is expected as early as the second quarter of 2009. However, VMS should still stay conservative and adjust the numbers if it is able to get back the full investment by end of December 2009. Once the full amount is restored, unless VMS really demands for the funds, it could possibly pay it out as a particular dividend worth $0.50 per share.
VMS is expected to have a quarter-on-quarter improvement of 7.5% in revenue and an increase of 14.7% in net profit for the second quarter.
While the global recession has already bottomed, recovery is still believed to be slow and arduous. Intrinsically, OCBC hold off correcting their fiscal year 2009 and 2010 estimates until the second quarter results and obtain an improved sense of its clients’ viewpoint from management.
Temporarily, the latest market revaluation has led OCBC to make a revision on their assessment for VMS, changing from a really conservative fiscal year 2009 PER of 8 to a positive blended fiscal year 2009 and fiscal year 2010 PER of 12.5. This boosts the fair value of $5.64 to $9.26. Joined with the expected dividend of 5.8% (excluding the possible special dividend), OCBC upgrades their evaluation from “hold” to “buy”.