Shares of Venture, already at a more than ten-year high, may climb further this week.
That’s after Foo Zhi Wei, an analyst at UOB KayHian, published a report, subtitled “This changes everything,” saying that the brokerage’s investigation had found “strong evidence” that Venture was the manufacturer of a “leading consumer device” for a U.S.-based multinational company.
Neither the device, nor the multinational company were named, but the report estimated the project had potential revenue in excess of S$2.5 billion per annum.
“A production ramp-up in 2017 to meet rising demand in Asia and Europe will likely continue into 2018,” Foo said in the report, citing high demand for the device in Japan and South Korea.
“A launch of the device in the U.S. will push production to full capacity, with earnings likely exceeding consensus estimate in 2018,” Foo added, noting that it estimated Venture was producing at less than 50 percent of its annual capacity as of the end of September.
To be sure, the brokerage’s reported noted this has not been confirmed by Venture management.
Stock may be worth more than S$33 a share: UOB KayHian
The report estimated Venture would “easily” be worth more than S$33 a share if UOB KayHian’s predictions pan out. The stock ended Friday up 6.51 percent at S$26.66.
UOB KayHian raised its 2017-19 earnings estimates by 23-33 percent, but it noted that didn’t factor in contributions from a full U.S. rollout. It raised its target to S$31.88 from S$23.50, keeping a Buy call.
The brokerage estimated that the U.S. launch represented a market potential of around 55 million individuals on TOP of the more than 200 million potential customers in another 38 markets globally, that the client will need venture to supply the device to.
Venture’s fourth-quarter results, due on February 28, could already show a revenue increase from the project, UOB KayHian said, noting that Venture’s dedicated supplier for the device’s components increased production in the third-quarter of last year. Assuming the supplier’s earnings lead Venture’s by one or two quarters, Venture could see a fourth-quarter revenue jump, the report said.
Special dividend possible
The brokerage also said it expected that Venture would pay a special dividend of 15-20 Singapore cents on top of its usual 50 Singapore cent final dividend.
But the report cited one big risk to its forecasts: That the device launch in the U.S. fails to materialise as it is subject to approval from the U.S. Food and Drug Administration (FDA). UOB KayHian noted the risk wasn’t immaterial as a scientific committee advising the FDA in early February gave a negative review, citing concerns about the client’s ability to market the device as a “reduced risk product.”
UOB KayHian also noted that the device had sparked “controversy” previously and could see changes in legislation, particularly in European markets.
Venture is a contract manufacturer for electronics companies as well as providing engineering and logistics services.