Venture downgraded to Hold by CGS-CIMB amid trade war caution

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CGS-CIMB downgraded Venture to Hold from Add, saying that the U.S. trade tensions warrant caution over the company.

“If the trade war does lead to a pullback in orders or delays in product launches by its customers, second half of 2018 net profit may also be affected negatively,” it said in a note on Wednesday.

On Wednesday, China warned that it would retaliate if the Trump administration imposes its threatened tariffs on US$200 billion of Chinese products, which were the U.S.’s planned retaliation for China’s retaliation on the U.S. imposing tariffs on US$34 billion of Chinese goods.

After speaking with Venture’s investor relations manager last week, CGS-CIMB said that “at this juncture, Venture has not seen any changes as a result of the trade war. The company is in constant contact with its customers to manage the situation.”

But it noted that 81 percent of Venture’s production by site area was in Malaysia, and that it also bought an around 39,000 square meter site in California recently.

“We note that, in the past, Venture successfully helped its customers to transition their production from other locations to its Malaysian facilities,” it said.

It added that the U.S. dollar had strengthened recently, and that tends to be positive for tech manufacturing companies, potentially positively affecting Venture’s earnings.

The brokerage said that to be cautious and to include potential revenue headwinds, it cut its revenue growth forecasts to the 7.3 percent average the company reached in 2014-16. It also cut its 2018-20 earnings per share forecasts by 8.7 percent to 14.5 percent and lowered its target price to S$17.83 from S$25.64.

Based on historical performance, with the second quarter usually accounting for around 24.7 percent of annual sales and 22.7 percent of net profit, the brokerage forecast second quarter net profit could come in at S$87.6 million, up 25 percent on-year and 5 percent on-quarter. But it noted that second half net profit could fall 15.7 percent on-year given the high base a year earlier.

The stock ended Thursday down 2.46 percent at S$16.26.