Brokers' take

VENTURE CORPORATION | HOLD

TARGET PRICE: $12.90

FEB 11 CLOSE: $15.97

UOB Kay Hian, Feb 11

Venture is expected to report Q4 2018 net profit of $101 million, in line with consensus estimate of $103 million.

We expect the net margin outlook to be a key focus as we are expecting some R&D activities to once again boost margins.

Recent commentary from clients reinforces the view of a V-shaped recovery in Q4 2018. Venture experienced strong shipments, especially in the Retail Store Solutions and Test & Measurement/Medical segments. In Q4 2018 results commentary from key clients, both NCR and Illumina reported strong Q4 2018 volumes.

But the view becomes more mixed going into 1H 2019, with key client Illumina flagging a back-loaded 2019.

Another client, Phillip Morris, is cautiously optimistic on the outlook for its IQOS device and accessories. However, the product's poor showing in Japan is a concern.

Given the shipment data and corroborating results commentary from clients, strong Q4 2018 results are highly probable. This likely includes some element of order front-loading by clients that boosted demand. We believe this has more or less been priced in by the market.

Our earnings estimates remain unchanged for now. But we would not be surprised if management undertakes defensive moves such as issuing a special dividend. This will likely prompt a spike in share price.

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SIA ENGINEERING | NEUTRAL

TARGET PRICE: $2.66

FEB 11 CLOSE: $2.39

PhillipCapital, Feb 11

On the positive front, SIA Engineering saw lower operating expenses, mainly thanks to lower material cost.

Material cost was $12.4 million lower year-on-year (-27 per cent y-o-y), in line with the lower workload.

Material cost is the second-largest cost component and made up 14 per cent of operating expenses. The largest cost component is staff costs, which made up 51 per cent.

However, core company earnings continue to weaken.

Lower revenue from airframe and fleet management has been an ongoing issue.

Lower airframe revenue is a structural issue of less frequent hangar visits as airframe reliability improves from materials such as composites.

Likewise, lower fleet management revenue is due to a structural issue packaging the service jointly with the aircraft's original equipment manufacturer (OEM).

Profit from associated and joint venture companies was also lower (-53 per cent y-o-y, -36 per cent q-o-q) from one-time events. We were expecting 28 per cent y-o-y lower and only 1.7 per cent q-o-q lower profit.

The outlook is negative. The core company operations remain challenged by longer maintenance intervals and lighter work content. We were expecting the contribution from engine shop visits at its associates and joint ventures to have stabilised, but this was marred by the one-time events. We are cautious over further negative impact from restructuring of other associated and joint venture companies.

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