Y VENTURES GROUP (YVEN SP) - UOB Kay Hian 2018-01-31: Fabulous Start To 2018. Target Price Raised To S$0.65

Y VENTURES GROUP (YVEN SP) - UOB Kay Hian 2018-01-31: Fabulous Start To 2018. Target Price Raised To S$0.65 Y VENTURES GROUP LTD. 1F1.SI

Y VENTURES GROUP (YVEN SP) - Fabulous Start To 2018. Target Price Raised To S$0.65

  • 2018 looks to be exciting for Y Ventures as the successful launch of Faire Leather, entry of a strategic shareholder and newly-secured online distribution for over 20 brands augur well for long-term prospects. 
  • Maintain BUY with a higher target price of S$0.65, based on a P/S of 2.3x (30% discount to peers). 
  • We see possible upside to our target price as investors appreciate the scalability of its business model and accord higher valuations, both on a P/S and PE basis.



WHAT’S NEW


Great start to 2018. 

  • Y Ventures (YV) started 2018 very strongly. Firstly, it very successfully launched its online brand Faire Leather. This was shortly followed by a new share placement to a shareholder whom we deem strategic. Another positive is that it had secured online distribution rights for over 20 brands. 
  • We review these developments, amend our earnings forecasts and raise our target price to S$0.65 (from S$0.28/share previously). We move Y Ventures’s valuation benchmark to P/S (previously PE) to reflect its strong growth and scalability of its business model.



STOCK IMPACT


Stunning success of Faire Leather...

  • Since the launch of its online consumer leather goods brand – Faire Leather – on Kickstarter, interest has been very strong. The online functional luxury brand was launched in Nov 17 and Faire Leather has garnered sales of S$406,000 in less than 50 days, making it the most successfully-funded Kickstarter campaign ever launched in Singapore. 
  • Just to recap, Faire Leather is a joint collaboration between Y Ventures and Singapore’s homegrown leather goods company Tocco Toscano on a 51% (YV): 49% (TT) basis. The JV was only formed in 14 Aug 17 and the fast launch and good sales of Faire Leather in such a short period since the JV commencement is impressive.

...paving the way for potentially more new online brands. 

  • In our view, the successful launch of Faire Leather is further proof of the group’s data analytics capability. 
  • The record-setting Kickstarter campaign of Faire Leather could open up more opportunities for Y Ventures to collaborate with other companies to launch new products and create new online brands. This also indicates the scalability of its business model and positions Y Ventures well to be a builder of more successful online brands.

New consumer distribution deals in the bag. 

  • In its press release dated 23 Jan 18, Y Ventures announced that it has secured online distribution rights for over 20 new brands such as personal care brand Footpure, consumer electronics brand Lowepro, health and wellness brand Shanti Switchel, F&B brand Mavella and maternity brand Mater Mothers’ Hospital, amongst many others. 
  • While these new brands may not immediately contribute significantly to bottom line given the need to build awareness, they provide for a solid start to 2018. On the average, we conservatively estimate that each of these brands could contribute revenue of US$100,000/p.a..

Entry of new shareholder that is strategic for business. 

  • On 11 Jan 18, Y Ventures announced that it will place 5.0m new shares at S$0.24/share to a strategic investor R3 Asset Management. Together with the placement announcement, Y Ventures and R3 have also entered into a non-binding MOU where R3 will endeavour to introduce new retail brands, strategic alliance and possible acquisition targets that synergise with Y Venture’s proprietary retail analytics. 
  • Interestingly, R3 Asset Management is cofounded by Ron Sim. The endorsement by the management of R3 which comprises seasoned veterans in the consumer retail industry is a strong show of confidence in Y Ventures. We are excited about this and believe the partnership could open up a lot of potential collaborations or other opportunities.

M&A another potential driver? 

  • With the recent Y Ventures share price strength as well as strong balance sheet (estimated net cash of S$5.8m or S$0.03/share), we see accretive M&As as another earnings driver or catalyst with Y Ventures potentially considering M&As through share issuance or cash/debt funding. 
  • We believe Y Ventures’s visibility after its IPO could open up more new M&A opportunities.


EARNINGS REVISION/RISK


Higher revenue expectations. 

  • We raise our 2018-19 turnover expectations as we factor in more online distribution rights for consumer good and books. However, our net profit estimate for 2018 is relatively unchanged at US$2.6m and we raise our 2019 net profit estimates by 11% to US$3.9m. 
  • Our 2018 forecasts are relatively unchanged as we build in higher staff and expansion costs as we believe the group could continue to re-invest in building up its technical capabilities. This is in line with its plan to enhance its data analytics capability, which we think will bode well for the group’s longterm outlook. 
  • We have trimmed our 2017 net profit estimate down to US$0.6m from US$0.8m (unadjusted for IPO expenses and one-offs) to reflect higher-than-expected expansion costs (including staff costs). Despite the slight cut, 2017 is history and investors should look ahead to robust earnings from 2018 onwards.

Robust earnings growth. 

  • Factoring in the new share issuance of 5m shares (2.5% of existing share capital), we forecast a 3-year EPS CAGR of 40%. This is partially due to a low base effect in 2017. 
  • Looking beyond 2018, we see upside potential in earnings as contributions from online distribution of new consumer brands and its own brand Faire Leather pick up momentum. As for the newly-secured consumer online brands distribution, we have only factored in meaningful contributions from 2019 onwards as we think that the online distribution for the 20 new brands may need a gestation period in 2018.


VALUATION/RECOMMENDATION


Maintain BUY with a higher target price of S$0.65/share. 

  • In our view, Y Ventures’s strong earnings growth outlook over the next few years and scalability of its model justifies a move towards a P/S valuation benchmark compared to our previous benchmark of PE previously.

Buffer from large P/S discount and comparable PE. 

  • We have used a target 2019F P/S of 2.3x, which is at a 30% discount to its listed peers. We have opted to be conservative given Y Ventures’s smaller market capitalisation and limited earnings visibility.
  • Nevertheless, we believe potentially more new consumer brands distribution and JVs with established partners to create new online brands (such as its Faire Leather) would be a potential catalyst for the P/S discount to narrow to below 30%. As a sanity check, our current P/S-based target price suggests a PE valuation of 26.2x, which compares to its peers’ PE of 25.7x.




Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2018-01-31
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.65 Up 0.280



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