Y VENTURES GROUP (YVEN SP) - UOB Kay Hian 2017-08-22: Prospering In The New Economy

Y VENTURES GROUP (YVEN SP) - UOB Kay Hian 2017-08-22: Prospering In The New Economy Y VENTURES GROUP LTD. 1F1.SI

Y VENTURES GROUP (YVEN SP) - Prospering In The New Economy

  • Y Venture Group (YVEN) is an e-commerce company selling a mixture of in-house and third-party brands. 
  • Banking on its proprietary data analytic systems, YVEN is able to capitalise on price and feature trends to partner the world’s leading brands to sell products in multiple countries across various online marketplaces. The group retails over 5,500 SKUs in more than 20 online marketplaces. Investors can look forward to explosive growth while being rewarded through dividends.
  • Initiate with BUY and PE-based target price of S$0.28.



INVESTMENT HIGHLIGHTS


Initiate coverage with BUY and PE-based target price of S$0.28. 

  • Our target is conservative and based on a 40% discount to peer comparison. We think the discount could narrow as YVEN grow earnings and deliver positive newsflow. We expect Y Ventures Group (YVEN) to deliver explosive organic top-line growth in 2018 driven by an influx of new partners and growth in in-house brands. Minority shareholders will be rewarded in step with the growth of the company through the 20% dividend policy for 2017/18. 
  • Valuations are compelling as YVEN is trading at a substantial discount to regional and US listed peers.

Explosive growth in net profit. 

  • We forecast a 32% CAGR in core net profit over 2016-19 driven by the on-boarding of new brands and expansion of product offerings into other segments such as electronics and cosmetics. YVEN is primarily engaged in the sale of books and household items such as clocks and some FMCG products.
  • The company acts as a distributor and market research firm for a wide range of well-known consumer brands such as Owl Coffee, Dr Forhair and Unisoy.

Scalable proprietary data analytic algorithms and global reach provide edge.

  • YVEN’s value proposition lies in incorporating its proprietary data analytics capabilities into the traditional distribution model. By examining historical price and feature trends, the company is able to predict supply and consumer preferences to a high degree. This makes it attractive to third-party brands as they can partner YVEN to distribute products, analyse consumer demand and optimise prices to maximise sales. 
  • In 2015, YVEN started distributing in-house brands capitalising on their immense knowledge of e-commerce marketplaces. 
  • YVEN markets both in-house and third-party brands globally through some of the world’s biggest online marketplaces such as Amazon, eBay, Lazada, Qoo10, Tokopedia and Carousell.


Right time and right space. 

  • Internet penetration continues to grow at an astounding rate, with Global Digital estimating that the number of internet users has grown 82% to almost 1.7b users since Jan 12. This translates to almost a million new users each day or more than 10 new users each second. 
  • E-commerce sales have been growing at an explosive rate of 19% p.a. since 2012. YVEN is a direct proxy to this exciting and growing sector.

Strategic acquisitions to drive future growth. 

  • The fastest way for YVEN to grow would be through strategic acquisitions or joint ventures with other e-commerce players as this immediately open ups new markets and consumer groups.


Earnings And Financials 

  • We forecast 2017 net profit to decline 47% due to IPO expenses and expansion costs. Excluding the S$1.2m incurred for listing, net profit would have been US$2.0m, which would have been a 33% increase in FY16 core net profit. 
  • Due to the high growth nature of the e-commerce industry and small size of YVEN relative to e-commerce giants, we expect sales to grow at a meteoric rate of 23-33% over FY16-19, driven by expansion into new product lines and on-boarding of new third-party distributors.
  • As the group gears up post-IPO through the new funds raised and its status as a listed firm, we expect to see gross margin compression as new brands come on board. As the relationships are nascent, new brands typically do not give YVEN big discounts on merchandise. But over time, as YVEN proves its worth and ability to sell online, the discounts get bigger and gross margins should start expanding further down the road.
  • We forecast a 32% CAGR in sales from FY16-19 for 3rd party brand sales driven by on-boarding of new brands and a 20% CAGR in sales from FY16-19 for private label sales driven by expansion of existing private portfolio SKUs.


Company Profile 

  • Founded in 2003, YVEN is a data analytics-driven e-commerce retailer and distributor with a presence in more than 20 online marketplaces in different countries. 
  • The group drives sales for third-party brands and its own private label JustNile on online marketplaces such as Amazon, eBay, Lazada and Tokopedia. 
  • Capitalising on its data analytics capabilities, YVEN enhances sales results and cost efficiencies for its clients by analysing demand trends, pricing and market landscape to help clients make better commercial decisions.


Valuation 

  • We commence initiation on YVEN at BUY with a PE-based target of S$0.28. This is based on a 40% discount to its FY18 peer comparison, which we think is warranted as YEVN is a small-cap stock with limited liquidity. 
  • However, unlike most small-or mid-cap new economy or e-commerce stocks, YVEN is profitable and enjoys positive operating cash flow. The group even has a dividend policy of 20% payout for 2017/18 given its strong cash flow and we believe investors should consider these investment attributes very attractive. 
  • Looking ahead, we see potential for the discount to narrow if YVEN deliver earnings and positive newsflow from new clients. 
  • The stock is trading at only 10.6x FY18 PE and on an ex-cash basis, trades at 8.4x FY18 PE. Given our PE-based benchmark and low net profit base, our target price is very sensitive to earnings variation. At our fair 2018F PE of 15.1x, every S$100,000 variation in net profit would change our target price by S$0.01/share, or 3.6%. 
  • As a sanity check, selected e-commerce companies are assessed on a Price/Sales basis. Using this as a benchmark and based on a 40% discount to its peers’ Price/Sales of 4.4x, the implied target price for YVEN is S$0.38/share. 


Risks 


A substantial portion of purchases from 3rd party brands are from Elsevier Group.

  • The group currently has several major suppliers for the supply of merchandises under 3rd party brands in the books publishing product category. In particular, a substantial portion of our purchases are from Elsevier Group for the supply of medical textbooks and reference materials which accounted for approximately 47.6%, 47.1% and 66.6% of total purchases in 2014, 2015 and 2016 respectively. 
  • In the even that Elsevier Group are unable to meet the group’s demand for their merchandise, YVEN will have to seek alternative suppliers which may result in high cost of sales or disruptions to the business.

A substantial portion of revenue is derived from sales to Zhoukoudian Trading.

  • YVEN currently has one major customer, Zhoukoudian Trading, which is a wholesaler of books accounting for approximately 27.9%, 39.6% and 33.8% of total sales for 2014, 2015 and 2016 respectively. There is no assurance that Zhoukoudian Trading will continue to purchase the same quantities of products from YVEN nor that it will make prompt payment for purchases.

The group is dependent on third party logistics and last-mile fulfilment service providers to fulfil orders. 

  • Most of the group’s current stock is kept in 3rd party warehouses managed by various 3rd party logistics companies and last-mile fulfilment service providers. Interruptions to or failure of such 3rd party and last-mile fulfilment services could prevent the timely or proper delivery of merchandises to customers. 
  • If YVEN is not able to source alternative logistics companies for warehousing and delivery needs, operations could be materially affected.




Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-22
UOB Kay Hian SGX Stock Analyst Report BUY Initiate BUY 0.28 Same 0.28



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