Venture shares plunge after first-quarter earnings disappoint

Singapore one dollar bill

Shares of Venture plunged, extending an already deep recent slide, after the technology services and contract manufacturer reported disappointing earnings.

The stock tumbled 11.73 percent to S$19.91 by 9:55 A.M. SGT on Thursday, off an intraday low of S$19.84. That marked a cumulative plunge of around 30 percent since the April 19 close at S$28.82. With buy orders coming in as low as S$19.88, that may offer support.

Venture reported first-quarter net profit rose 72.2 percent on-year to S$83.7 million on revenue of S$865.0 million, up 1.5 percent on-year. It had a foreign exchange gain of S$95 million in the quarter, swinging from a S$332 million foreign-exchange loss in the year-earlier period. In the release after the market close on Wednesday, the company pointed to a weaker U.S. dollar and heightened  geo-political uncertainty.

The results came in below CGS-CIMB’s forecast for an 80 percent on-year increase in first-quarter net profit to S$87.5 million.

Valiantvarriors, an anonymous poster on what appears to be a free Wix site using a gmail address, on Tuesday had claimed Venture results would miss expectations by 6-8 percent, without providing an actual forecast. After the results were released, the anonymous poster said it was using S$91 million as its consensus forecast as 20 percent of 2018 full-year earnings consensus forecasts for S$455 million; it didn’t provide the source for its consensus forecast.

The post also urged Venture to release results in U.S. dollars to show the “actual operating performance.” However, the post itself also quoted the first line of Venture’s press release, which stated that in U.S. dollar terms, revenue would have grown by 9.1 percent. When asked about the discrepancy, Valiantvarriors said this didn’t count as disclosing and that it was instead just comparing the exchange rate between the U.S. and Singapore dollars.

“Disclosing includes comparing with past years’ revenues and earnings (referenced against analysts’ consensus),” it said via email. To be sure, companies don’t usually reference analysts’ forecasts and earnings statements generally include the previous period for comparison; other previous earnings statements would be available via SGX filings.

‘Judicious cost management’

The company said that its profit growth, despite the essentially flat revenue it reported, was due to “impactful value creation,” as well as “operational excellence and judicious cost management.” The net margin rose to 9.8 percent from 5.8 percent in the year-earlier period.

CGS-CIMB said that first-quarter core net profit was 19.1 percent of its full-year forecast, in line with the five-year average of 19.3 percent.

But after factoring in the negative impact of a weaker U.S. dollar, it cut its 2018-20 revenue forecasts, leading to 4.3-4.5 percent cuts in core earnings per share (EPS) forecasts, it said.

As for the share price drop, “even a good company cannot fight market sentiment,” the note on Thursday said.

“Given the current poor sentiment and concerns over earnings growth for tech manufacturing services companies arising from the trade/tech tensions between the U.S. and China, valuations are likely to revert to the historical mean,” it said.

It cut its target price to S$25.64 from S$30.81, after changing its valuation to 15.4 tomes price-to-earnings, the 11-year average, from 17.7 times previously.

The stock had been sliding since before the earnings release.

Analysts were pointing to tobacco giant Philip Morris’ results last week as the reason for the decline. Those results showed that its device, IQOS, which heats but doesn’t burn tobacco, added only 3 percentage points to cigarette volumes, halving the growth rate of the previous quarter, Marketwatch reported last week. Those results had sent Philip Morris shares down as much as 17 percent on the day. Venture is believed to be a manufacturer of the device, although the company has not confirmed this.

This article was originally published at 9:50 A.M. SGT on Thursday, April 26, 2019; it has since been updated to include Valiantvarriors’ comments.