2 big reasons why Venture's profit crashed 26%

Profits from Oclaro will be delayed.

According to Nomura, Venture reported 1Q13 net profit of SGD28.0mn (-26.0% q-q, -21.0% yy), 21% below our expectation of SGD35.5mn. Sales fell 10.5% q-q to SGD530.5mn (our estimate SGD572mn). EBIT margins fell 1.3pp q-q to 4.9% (our estimate: 5.9%) - lowest levels since 3Q09 when product mix was very weak given the additional low-margin printing business.

Nomura noted that the management attributed weakness to two key reasons:
1) Weak demand environment given continued macro-concerns;

2) Startup costs for Oclaro business which will see initial ramp only from 2Q13F and reach full ramp only in 2014F.

Here's more:

While we believe Venture could see a 2Q13F sales growth incrementally better than peers on higher contribution from Oclaro, overall demand environment remains weak. Note: Peers are guiding 2~7% q-q in line with seasonality.

We believe, margins are unlikely to see full recovery till a meaningful portion of Oclaro business gets ramped, probably by end-2013F. As such barring a major turnaround in demand, Venture is likely to see a slow 2013F. We are relooking at our earnings forecasts.

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