Daiwa started coverage of Venture Corp. at Outperform with a S$17.90 target price, pointing to its transition from a premium contract manufacturer toward integrating research and development (R&D) services.
“We see scope for a rerating as VMS’s business model evolves, which entails increasing the integration of its R&D capabilities as part of its clients’ new product development process, thus enhancing the interdependencies between all stakeholders and allowing VMS to pursue a higher gross margin while ensuring customer stickiness,” Daiwa said in a note Tuesday.
The investment bank added that Venture’s ability to adapt and develop customized services for clients was likely why the company works with many Fortune 500 companies, including Philip Morris International.
Daiwa estimated revenue from Philip Morris’ IQOS device would account for 28 percent of Venture’s top line by 2021, with strong demand for the heated-tobacco products a “critical positive catalyst.” It noted the U.S. Food and Drug Administration (FDA) approved the device recently.
“Amid the current U.S.-China trade standoff, we see VMS’s positioning as a niche EMS [electronics manufacturing services] supplier as being relatively defensive vs. its larger-sized peers,” Daiwa said.
It added that the trade war concerns coupled with management’s outlook for “near-term volatility” in performance have dented the share price, but have also created an “ideal opportunity” to accumulate the stock.
The stock was up 0.65 percent at S$15.47 at 11:42 A.M. SGT.
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