• Net profit in line even though 12% y-o-y sales decline was sharper than expected
• Margin recovery was superb and is sustainable; transition expected to continue for another quarter
• Up PATMI forecast by 10% on better margins and TP to S$10.70; Maintain Buy

Strong margin recovery offset plunging sales.
Core profit of S$40m (+27% y-o-y, -19% q-o-q) was in line with our S$38.3m forecast although sales of S$640m were 10% below our forecast. The anticipated paring down of low margin printer business was more aggressive than expected. Nevertheless, net margin expanded to 6.3%, compared to 4.3% in 1Q09 and our forecast for 5.4%. We expect net margin to trend higher to mid point of 6-8% as Venture continues to retool its business mix in Q2.

Non-P&I continues to recover.
While the transition further reduced P&I (-37% y-o-y) & PC Peripherals (-37%), other SBUs grew healthily, ranging from 12% to 23%. In fact, Test/Measuremt/Medic expanded 12% q-o-q, thanks to more outsourcing from Agilent. Three new ODM customers were added in Q1. We see growth momentum continuing in the quarters ahead, especially when Venture’s solid balance sheet enables it to stock up more components than competitors whose growth would be crimped by component tightness. Notwithstanding a higher amount of inventory carried, working capital held steady at S$551m. Cash conversion cycle lengthened a tad but Venture still generated S$33m cash, bringing net cash to S$370m from S$343m at end 4Q09.

Maintain Buy, higher TP of S$10.70.
While paring down on topline by almost 10%, we have nudged up margin assumption by 1.4ppts. Consequently, our TP was raised to S$10.70, still pegged to mid cycle 15x PE. Including 5% dividend yield ( xD on 10 May) and 9% price upside, we maintain Buy on Venture.