Venture Corporation’s Profit Dips: Should Investors Worry About This Blue-Chip Company’s Prospects?

2021-03-06     thesmartinvestor
Venture Corporation’s Profit Dips: Should Investors Worry About This Blue-Chip Company’s Prospects?

Venture Corporation Ltd (SGX: V03) is a provider of technology products, services and solutions for multinational clients.

The group comprises over 30 companies and manages a portfolio of over 5,000 products.

Its products serve customers in a variety of sectors, including life sciences, financial technology and network & communications.

Earlier this week, Venture released its full-year 2020 (FY20) earnings.

The blue-chip technology company reported a net profit of S$297.3 million for FY20, a year on year decline of 18.1%.

Additionally, the group’s revenue fell by 17.1%, to S$3.0 billion.

The decline in profits can be narrowed down to a rough start to 2020 for Venture.

Early last year, the first wave of COVID-19 infections forced the company’s factories in China, Spain, USA and Malaysia to go under lockdown.

With the lockdowns impacting Venture’s ability to fulfil customers’ orders, net profit in the first quarter of 2020 (1Q20) fell by 33.6% year on year.

Meanwhile, revenue in 1Q20 also fell 27.5% year on year to S$673 million.

A gradual recovery

Venture adapted to the pandemic by pivoting its production lines to produce essential goods used to combat the pandemic.

These products include ventilators and other instruments used to test for COVID-19.

Meanwhile, demand for semiconductor-related equipment and communication network modules also remained strong.

Venture’s operations were also boosted when factories were allowed to reopen in May and June.

These factors caused Venture’s profits to rebound, recording a sequential quarter on quarter growth.

Net profit in the second half of 2020 was S$166.8 million, a 27.8% improvement from the first half.

Revenue also picked up during the same period, growing by 20.6% to reach S$1.65 billion.

Despite the rebound, Venture’s fourth-quarter net profit of S$86.7 million still represented a year on year decline of 10%.

Dividends increased

Even though profits fell, Venture managed to raise its dividend for the first time since 2018.

The company declared a final dividend of S$0.50 per share, which brings the total dividend for 2020 to S$0.75, a 7% increase from 2019.

The increase is a signal of Venture’s confidence in its business prospects and cements the company’s reputation as a reliable dividend-paying stock.

Venture’s consistent dividends are due to the company’s ability to generate free cash flow.

Venture’s cash flow from operations was S$498.6 million in 2020, a 71% increase from 2019.

As of 31 December 2020, the company had a net cash position of S$928.7 million, with no debt outstanding.

Incoming opportunities

As a trusted partner of many leading technology companies, Venture has already established itself as a reputable brand.

The company has a diverse spread of R&D capabilities and technical know-how across various technology sectors, and this diversity allowed Venture to stay resilient throughout the pandemic.

With data usage and demand for technological advancements set to boom in the coming years, Venture’s impressive capabilities leave it well-poised to capture gains from these structural trends.

Venture has also announced plans to expand its capabilities in fast-growing sectors such as genomics, artificial intelligence, and battery electric vehicles.

The technology giant also has a backlog of new products that will be rolled out in 2021. Their release was delayed due to the outbreak of the pandemic.

With strong capabilities backed by favourable tailwinds, Venture looks poised for a fruitful year ahead.

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Disclosure: Herman Ng does not own shares in any of the companies mentioned.

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