Since hitting close to $30 per share for a relatively short period of time in early 2018, the share price of Venture Corporation has been hovering below $20 and to even below $16 during the Covid-19 pandemic lock-down period. For most of the trading days in year 2018, the whole of 2019 and in the first half of 2020 until the release of the financial results for Q2, 2020, its share price has been hovering uninspiringly in a tight trading range. In fact, only until recently, its stock price performance paled against the more glamorous counterpart like AEM Holdings, the glove makers and, perhaps, the banks despite the resilience of the business.
Year 2020 is a year that most local investors would like to forget. Since the beginning of 2020, when the STI was at 3200 level in end January 2020, it has retreated about 18% to date. It had been worse during the peak of the Covid-19 pandemic lockdown. While the stock market overall descend has not been not exactly deep, what is scary to most of us is that it could stay much longer and affect more people than originally predicted. The reasons being that (a)the virus is asymptomatic (for that I mentioned in the video 6 months ago) [Click here for attached video], and (b) nobody knows exactly how this virus came about, let alone finding a vaccine to arrest the spread of it. Even until today, concocting the right vaccine to overcome the virus is still some months (or even years) away. Surely, in such a situation when a pandemic swept across the whole world without a proper cure, we cannot expect stocks to perform well, in particular those that thrive on travels, human interactions and mass congregations. In comparison, technology stocks related to final products that help facilitate and enable human interactions virtually and those in the designs and manufacture of medical-related gadgets or equipment should do reasonably well. In the worst case, their stock prices should stay relatively resilient.
Venture Corporation, falls in the category of technology stocks, that designs and manufactures products in areas of medical sciences and biotechnology. It is, unfortunately, difficult for a venture manufacturer to divulge exactly what she does in terms of products, target segment and geographical presence. Perhaps, this is a way to maintain their technological advantage over its competitors. (To get an idea of its size of its business, think in terms of Foxconn which is the Taiwanese contract manufacturer for Apple Incorporation. Its manufacturing facilities in Longhua district in Shenzhen is big enough to encapsulate a walled-city employing 250,000 to 350,000 people, and making its chairman the richest man in Taiwan. Perhaps, Venture Corp is 1/30th the size of it but still, it is enough to make its impact for a relatively small-sized country like Singapore.) Snippets of information from analysts suggest that one of their key strength is in areas of designs and manufacturing related to medical sciences and biotechnology.
In terms of its financials, it has been growing from strength to strength. From the FY2019 annual report, it has almost zero long-term debts and comparatively small short-term liabilities against its revenue and, very importantly, a high cash hoard. The operational cash flow and free cash flow for the past 6 years have been highly positive, enabling the company to give relatively good dividends during all these years. Interestingly, prior to year 2016, the share price had been below $10. With the constant dividend of $500 for many years, its dividend yield was around 6%, roughly on par with the REITs counters, which were enjoying between 5% and 8% dividend yield at that time. Unlike the REITs, it carried insignificant amount of debts all of the time. In my view, I would have ranked it highly above the REITs as it should able cushion itself better during bad times based on its low debts and high cash hoard. In hindsight, I believe that I did not buy too aggressively at that time, was due to the extremely high payout ratio of close to 100%. Unless the board of directors knows what they are doing, my initial thought was that it might not be sustainable even though the company had the ability to do so. Actually, during the years before 2017, the stock price has not been exactly exciting despite its strong fundamentals. That all changed when the chairman and CEO spent SGD6.1million in cold hard cash in a single market purchase of 400,000 shares. That probably excited the market, pushing the share price up to nearly $30 in the following 6 months. But still, that did not last very long. The descend was just as fast as the ascend, and the stock price was back to below $20 by mid-2018. In fact, the share price has been lingering below $18 most of the time in the past two years, exacerbated by the Covid-19 pandemic, which saw the share price falling below $16.
Excited by the chairman and CEO, who paid top-dollar for the stock at that time, my thought was he must have known something that I did not know. Why was he buying at such a high price and all in one go – SGD 6.1million dollars market purchase for 400,000 shares. Following the huge price ascend and then descend by mid-2018 when the share price went below $20, I made my first reluctant purchase. Following that, I made another 23 bit-sized purchases in the next two years averaging about one purchase a month. But still, the 2-year journey can be quite a daunting experience given that the share price has not been moving very much until very recently. In fact, it was even more demoralising during the Covid-19 lockdown when it fell below $16 per share. The recent price increase of about 20%, hopefully placed it in good stead for any near-term price weakness Still, it is a good substitute for my ‘dividend lost’ following MAS’s advice to the banks to reduce this year’s dividend to 60% of the last year dividend payout. The increase in the H1 dividend for Venture Corporation from $0.20 to $0.25, certainly came as a pleasant surprise, in view that many companies are giving out zero or reduced dividend due to the Covid-19 pandemic. Hopefully, it augers well for the rest of the year and into 2021. A quick back-of-envelope calculation based on the assumption that the final dividend remains unchanged at $0.50 showed that the current yield is on par with that of the banks of around 3.5% to 4.0%.
Disclaimer: While the writer owns stocks in Venture Corporation, it is not meant to be a recommendation to induce readers to buy or sell the said security. The write-up is entirely a personal opinion of his own based on the prevailing circumstances. All mentioned actions on the stock are the writer’s past activities based on the circumstances and thoughts at the mentioned times. The past does not represent the future. It is, therefore, not a recommendation to buy or to sell the said security. All readers are expected do their own research before taking any buy or sell actions.
Brennen has been investing in the stock market for 30 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.