From $17.00 in January, the price of Venture Corporation has dropped to $11.69 on 19 October 2023. That’s a whooping 31% drop!
By now, you should know my favourite answer.
- Are you buying it for capital gain or dividend?
- What’s your timeframe for this investment?
- Do you know roughly what the company does?
- Do you have confidence in the management?
Venture describes itself as a leading global provider of technology services, products and solutions. Essentially it is an electronics design and manufacturing company that adds value to their customers, as they are known for its deep expertise in various technology domains and offer a wide range of differentiated services.
Being a diversified group, it is hard to fully understand what they do and excel in. It doesn’t help that they can’t share too much information due to competition. On the other hand, being involved in diversified fields from life science and medical devices to luxury lifestyle technology and advanced industrial, do mean that they are more likely to cushion any fall in demand in one sector.
The success of Venture is closely tied to founder Wong Ngit Liong. He has transformed the group from an electronics manufacturing services start-up into today’s leading global provider of technology services, products and solutions. He relinquished the role as CEO at the close of 2021 but remains as the Executive Chairman.
There is always a concern of succession planning when the existing leader is highly capable and influential. Mr Lee Ghai Keen who was the COO then, had big shoes to fill when he was being promoted to CEO in 2021. As I mentioned in the post Venture AGM 2023, I found it weird that the person who sat next to Executive Chairman was not the CEO but the incoming CFO. In fact, Lee was not even sitting together with them but together at the side with senior management.
A year and a half later, the group installed a dual CEOs system by promoting COO Wong Chee Kong as CEO to lead the advanced manufacturing and design solutions (AMDS). While Lee will lead the technology products and solutions (TPS) group.
It is an interesting development and while uncommon, there are a few notable companies that have or had co-CEO such as Chipotle Mexican Grill, Netflix, Whole Foods Market and Sennheiser.
Both CEOs have been with the group for a long time. Lee joined Venture in 1998, while Wong joined in 2003. So their values and thinking would be aligned to the group. Are they as visionary as the founder? I do not think so, as simply not many people possess a founder’s personality. However, that does not mean they could not bring Venture to a greater height.
It’s just like while Tim Cook does not appear as visionary as Steve Job, he has continued to grow Apple to where it is today.
Crunching the numbers
Looking at the past 15 years of data, one could see how the group has transformed! While they don’t reveal what their products are due to competition, you could see a distinct change in the year 2017. There’s a big jump in the net profit margin from around 6% in the past to around 10% from 2017 onwards.
Reading through the annual reports, there isn’t a clear indication of a significant change in that year. I reckon that 2017 probably happened to be the inflection point for their multi-year efforts in transforming the group.
The following are some other numbers that caught my attention.
- The drop in net profit in 2014. This was due to accounting for an one-off loss of $63.8 mil for their investment in DMX Technologies Group Limited. Without which, they would have a net profit of $140 mil.
- While there isn’t any noticeable trend, the group has been profitable and free-cash flow positive for the above period.
- The group has been in net cash position since 2013 and the amount of cash continues to increase since then. The group cleared most of its loans by 2018 and has no bank loan since 2020.
- Despite the gyration of earnings, the group consistently gives out similar amount of dividend till 2017. They first started to declare an interim dividend in 2018. The group also does not have a dividend policy but they endeavour to pay equal, if not higher, dividends each year.
- Share price as expected is not just a function of the underlying business. There could be variation even when year to year results are similar. As with all stocks, the variation in stock price is greater in a shorter time frame. However, a significant improvement in the fundamentals does result in the share price trading at a higher level.
As seen from the above slide, Venture reported weaker 1H results compared to 2022. Similar to other semiconductors and manufacturing companies, they are facing softening demand as customers are reducing the built up inventory from the previous year.
If you have looked at the 15-year data, then you know that such variation in the group’s revenue and net profit is normal. Two positives that came from the report is that net cash position continues to increase and management shared that new customer acquisition and new product introduction activities are gaining traction.
So while 2023 looks like a year of lower revenue and profit, they are very likely to declare the same amount of dividend.
The transformation of Venture has allowed its net profit to compound annually at an average rate of 9.6% over the past 10 years. If one would have bought Venture in January 2013 at $8.07 and sold it at $17.00 in January 2023, the total return including dividend would be 188%! Read this post for another 3 Singapore counters that provide triple digits return over the past 10 years.
However, this did not happen in a linear manner and for many years the price has remained range bound. If the group can maintain its revenue and net profit within a 20% range, then the price should continue to trade within a range.
As a shareholder, I definitely hope that it will occur but with a net profit margin of near to 10%, any growth going forward would probably come from increasing revenue.
What attracted me the most though is its sustainable dividend. It already has a track record of giving consistent dividends as its business is cash flow positive. Compare to a decade ago, Venture is now in a better position to continue to do so.
Haha, I convinced myself to buy more this morning. This purchase gives me a yield of about 6.4% for next year if they maintain their $0.75 dividend.
Venture will be giving its Q3 results update in the next two weeks. A weaker performance is expected but hopefully there is something to look forward to for next year.
I use most of the following services and platforms. If you would like to use any of them, do sign up my referral links.