Approx 275m shares issued, plus 2.5m unissued shares under options scheme. Mkt cap @$5 is approx $1.39bn
1) What do they do?
Contract manufacturing in these areas (from 07AR):
- printing and imaging: AR mentions products for commercial/industrial users, such as mobile printer, mobile label/receipt printer, production printing system. Also makes printers for HP, which accounts for a quarter of the company's sales.
- networking/comms: raid controllers, host bus adapters, fibre channel switches, microwave components and new generation receivers: probably mass market. Aligent is a customer.
- Retail store solutions: pointof-sale, electronic payment terminals, PIN pads used by retailers.
- Others (incl. medical devices)
Venture's largest competitors:
|Flextronics||(Year ending Mar 08) U$26.7bn||Makes everything: phones, laptops, cameras, telecoms infrastructure, office equipment, networking.||Quarter ending Dec 08: Q-on-Q sales down 10% (9bn to 8.1bn), Earnings (excl. one-time) down 49% (249m to 126m).|
|Hon Hai Group (unlisted). Group which includes some listed companies - largest is Hon Hai Precision (HHP).||HHP alone:|
Estimate U$54bn for 1 year from here.
NT 92bn (in Jan 09 alone).
See table for others.
|Worlds largest CM by revenue.|
Makes everything. Also cool things like iPhone, kindle, Wii.
|For Jan 09 (one mnth):|
|Quanta Computer||(Unaudited) From here: NT790bn in 2008, or U$22.6bn||Worlds largest notebook maker: estimated 33% mkt share in 05.|
Makes consumer products: Notebook, smartphone, automobile GPS/TV, digital TVs.
|Monthly sales are updated here (unaudited). January's sales down 36% YOY.|
|Sanmina-SCI||USD 700m in 2008 (p40 here) - how can it be so low?||In early 2008, sold their PC business (1/3 of revenue, approx 3bn) to Foxconn (Hon Hai). Dunno what they do now.||Dec Quarter revenue down 20% YOY.|
|Celestica||USD 7.7bn in 2008 (slide 6 here).||30% consumer, 20% enterprise, see slide 4 here.||Dec Quarter down 12% YOY.|
|Venture||USD 2.4bn in 2008||See 1) above.||Dec Quarter up 6% YOY|
An old (2004) listing of the worlds largest Contract manufacturers is here. Since then, Solectron was bought by Flextronics, and Sanmina-SCI's PC division was sold to Hon Hai.
How have they fared in the latest quarter:
All have been hit by the slowdown, with sales down 12-40%. Venture was hit less because printing and RSS managed to sign up new customers: (From DBS report, 20-Feb-09) - look at the 3rd column:
- Venture is a small small player, compared to the other giants. 10 or 20 times smaller (by revenue) than Hon Hai and Flextronics.
- Most contract manufacturer's revenue fell 12-40% in 4Q. Venture had a smaller fall due to signing up new customers (growth seems to be related to retail - which is the main use of thermal printers), but we should probably expect a fall later. Analysts are guiding for a 25-35% revenue fall in FY09 which seems realistic looking at the numbers above.
Their FY08 earnings statement in 5 lines:
Raw materials and consumables: 3.0bn
Staff costs: 290m All other costs incl.
Low margin, high turnover business.
- Depreciation was only 60m (included 17m amortization of 'customer relationships' so this would give 43m 'real' depreciation).
- Operating leases in FY07 had minimum payments of 13m.
PE is really low, reminds me of the 01/02 bear market. Only question is how much earnings can drop:
- DBS estimates 23% revenue fall for 09, earnings forecast of $183m. At a price of $5, gives PE of 7.6.
- Macquarie estimates 35% fall in earnings for 09 to $155m, with 50c dividend (75% payout ratio). At a price of $5, gives PE of 8.9.
- DMG forecasts 24.4% reduction in earnings to $217m. At a price of $5, gives PE of 6.4
I like it because it it cheap - a blue chip trading at projected 7-9X earnings and 10% yield. Company is well run and should recover.
- Competitors: it is far smaller than them.
- May be a long time before the American consumer/economy recovers.