Venture

Venture: 4Q12 results broadly inline, though dividend lowered. Net profit at $37.8m, +17% qoq, flat yoy. There were two surprise items, i) share of profits from associates came in at $3.1m vs a high of $1.5m in 1Q12 over the last 7 yrs, ii) but largely offset by reported income tax of $3.3m as mgt took provisions for end of tax incentives at one of Venture’s facilities. Nevertheless, mgt note it is seeking renewal of the incentives and may write back gains later. Sales of $592.8m was down 3% qoq, with sales across most segments down qoq with the exception of computer peripherals and data storage. Venture also missed the expected transition of business from Oclaro, which mgt now expects to ramp up over the next 2-3 quarters. Net margin jumped to 6.4% in 4Q12, its highest level of the year, largely due ot shift in product mix, driven by higher margin products in the RSS & Industrial and Test & Measurement, Medical & Others segment, and lack of meaningful jump in contribution from Oclaro, which will likely have lower margins initially due to learning curve. Mgt cut dividend to 40.50 from $0.55, citing it prudent on expected increase in capex spending of $40-50m for 2013e, vs $30m in FY12. Key expenditures are likely for, i) purchase of another building site for upgrade purposes, ii) commitment for another site to expand operations, and iii) some eqpt expenditure. Nomura reiterates Buy with TP $9.20, believes the dividend yield of 6.4% is still attractive and in better alignment with the co’s fundamentals. Sees positive catalysts from: 1) the revenue opportunity from Oclaro and Toshiba TEC in addition to potential upside in orders from Verifone; 2) new product launches in storage solutions, printing, and life sciences; and 3) Long-term theme of potential shift in manufacturing from China to South East Asia as wage inflation in China makes South-East Asia more cost effective. Maybank KE keeps at Buy with TP $9.65, believes the results sets up a low base for Venture to beat expectations in FY13. CIMB keeps at Outperform with TP 9.55. Notes Venture’s sh px may react negatively to the div cut, but advises investors to stay invested for the attractive and sustainable yield. Expects earnings growth to resume in 2H13.