Venture

Venture: 1Q15 slightly missed, net profit rose 5.8% y/y to $32.6m, while revenue climbed 3% to $608.7m, driven by a stronger USD. Otherwise, revenue would have been flat y/y in USD terms.

Bottom line was weighed by a 181% increase in R&D costs to $13.4m, which comprised tooling and prototyping costs, and a 91.8% increase in taxes to $5.7m from a change in sales mix of tax approved products. Management expects full-year tax rate to be lower. Net margin improved 0.1ppt to 5.4%.

Inventory rose to 90 days, as more components were taken in anticipation of delivery delays following Malaysia’s implementation of GST, and will be worked down in the next few quarters.

Networking & Communications’ sales was up 16.5% y/y on good results from Avago, QLogic and JDSU in the communications space. Higher telco capex should continue to drive this segment.

Meanwhile, Test & Measurement/Life Sciences sales (+7% y/y) should benefit from new product pipelines by
Life Sciences customers. M&A activity, where a stronger customer acquires another underperforming customer could also lead to better results.

Maybank-KE believes that Venture is on course for a FY15e DPS from $0.50 to $0.55, which Venture used to pay till FY11, from improved outlook and working capital management.
If the DPS surprise materializes, FY15e yield would improve from 5.9% to 6.5%.
Venture is currently trading at 14.8x FY15e P/E.