Venture rated at Underperform by Credit Suisse, citing multiple headwinds

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Credit Suisse assumed coverage of Venture at Underperform with a target price of S$14.50, cut from a Neutral rating with a S$24 target previously.

“While Venture has made credible efforts to develop next-gen products and drive margin improvement, we believe iQOS-led revenue growth has peaked, and escalating trade tensions present downside risks to earnings outlook,” the investment bank said in a note earlier this week.

Credit Suisse estimated IQOS made up 12-18 percent of group revenue and nearly 38 percent of revenue growth last year.

The bank was also more pessimistic on the product that Philip Morris International, which lowered its 2018 shipment forecast to 55 billion to 60 billion units, from over 60 billion previously, with Credit Suisse projecting only 52 billion units would be shipped.

“In addition, any volume upside coming through from potential U.S. FDA approval as a reduced tobacco product is unlikely to accrue significantly to Venture, as second and (potentially) third suppliers gain more market share. Hence, iQOS revenue is likely to plateau from 2018,” Credit Suisse said.

It also noted that the Test & Measurement segment’s underlying revenue growth moderated in the first quarter to 11 percent on-year, down from 84 percent in 2017.

“We believe the broad slowdown has continued into the second quarter of 2018, mirroring a 7.5 percent year-on-year decline in Singapore electronic exports,” it said. “At the same time, top-line growth for Venture’s key customers appears to be peaking.”

The bank also pointed to concerns over global trade tensions.

“While there have not been material changes to customer orders since the start of the ongoing trade war, there might be more significant cuts should the next set of tariffs on US$200 billion of goods be finalised,” it said.

The stock was down 1.98 percent at S$16.36 at 9:48 A.M. SGT.

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