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Venture Corporation Has Fallen Nearly 50% in 1 Year. Is it a Good Time to Buy?

Venture Corporation Ltd (SGX: V03), or Venture for short, is a global provider of technology solutions, products, and services. Headquartered in Singapore, the group employs over 12,000 people worldwide, manages a portfolio of more than 5,000 products and solutions, and has a client base of over 100 global companies including Fortune 500 corporations.

However, the group has seen its share price take a steep tumble within the space of just a year, falling from a high of S$29.51 in mid-April 2018 to S$15.09 as at 24 May 2019 – clocking up a decline of 49%. Is this an opportune time for investors to take another look at the company and assess if it may be a promising investment opportunity?

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Uncertainty with major customer

Philip Morris International Inc (NYSE: PMI), or PMI for short, a global tobacco and cigarette production corporation, is reportedly one of the major customers of Venture. PMI is ramping up its I Quit Ordinary Smoking (IQOS) range of heat-not-burn tobacco products but demand for this product may not be as strong as anticipated. Meanwhile, Venture also has another strong competitor, Flex Ltd (NASDAQ: FLEX), which may take on the bulk of orders for this new product.

Hence, the uncertainty over the prospects for this product has dampened sentiment for Venture and resulted in less optimistic prospects for its business.

Trade tensions between the US and China

The ongoing trade war between the US and China doesn’t look likely to end any time soon. With the US firing the next salvo at China by blacklisting Huawei Technologies Co, there are fears that the global supply chain for electronic parts may be severely disrupted. As Venture is a player in this industry, it will inevitably suffer should the ripples from this event spread.

Rich historical valuation

Regarding valuation, I decided to look at how Venture was valued during April last year, versus the present. Back then, Venture’s Q1 2018 earnings per share was 28.8 Singapore cents. Annualising this gives a full year EPS of around S$1.15. At the price of S$29.51, Venture was trading at a lofty price-to-earnings (PE) ratio of 25.6x back then. Today, Venture is trading at a PE of around 12x based on an annualised EPS of S$1.26 using Q1 2019 numbers. This shows that Venture was twice as expensive a year ago as compared to now.

As a quick comparison against two other peers in the same electronics industry, I took at a look at the valuations for both Valuetronics Holdings Limited (SGX: BN2) and UMS Holdings Limited (SGX: 558). They are trading at PE ratios (based on annualised earnings) of 7.2x and 11x, respectively. Therefore, Venture’s current valuation seems more in line with its peers.

Investors need to sit tight for now

Though Venture has suffered a steep tumble in the last 13 months, it appears that the group is still not in the clear yet. Global tensions and the negative sentiment surrounding the electronics industry have led to a wave of pessimism, depressing valuations for all the players involved. It can be argued that Venture was trading at too rich a valuation a year ago and is now simply trading back in line with its peers. Investors should sit tight and await more updates from the group on its future prospects.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.