RHB has downgraded Venture Corporation to “neutral” from “buy” as its lacklustre near-term outlook has already been priced in the share price, after lower second-half earnings released last week.
The downgrade on Monday (Feb 26) came with a trimmed target price of S$13.9 from S$14.7, upon the brokerage cutting earning forecasts for FY2024 and FY2025 by 4 per cent each to reflect the current run rate while awaiting more visibility on the completion of its customer destocking.
“We expect the immediate quarterly earnings to remain soft, on continued customer destocking, and valuation will hold at the -1 standard deviation level, without further earnings decline,” said RHB analyst Alfie Yeo, noting that a muted quarterly growth indicated a continued subdued customer demand in the first half of 2024.
Yeo added that sequential earnings should improve in the second half year after customer destocking tapers, and the drag by customers’ destocking should be offset by ongoing rollout of Venture’s new products.
He expects orders to increase after customer destocking tapers off by the end of the first half year, adding that the completion of so is vital before longer-term prospects turning positive.
Yeo forecasts a 9 per cent year-on-year growth for FY2024, well below earnings growth of 18 per cent in FY2022 when customer orders were robust given supply chain constraints.
Following that, he added, “we see a more normalised single-digit growth rate in FY2025 and FY2026”.
As at the mid-day market break on Monday, shares of Venture were trading up 3.6 per cent or S$0.50 at S$14.22.
