Y VENTURES GROUP (YVEN SP) - UOB Kay Hian 2018-03-05: Venturing To New Heights And Scalability

Y VENTURES GROUP (YVEN SP) - UOB Kay Hian 2018-03-05: Venturing To New Heights And Scalability Y VENTURES GROUP LTD. 1F1.SI

Y VENTURES GROUP (YVEN SP) - Venturing To New Heights And Scalability

  • Y Ventures’ MOU with SingPost is very exciting, in our view. Other than possibly working with a strong partner, we think the new e-commerce cross border buying platform is highly scalable. 
  • We raise 2018-19 net profit forecasts by up to 5% to reflect recent developments but before factoring in this MOU. Our P/S-based target price has been raised to S$0.80, based on 2.6x P/S, at a 20% discount to peers. 
  • A sensitivity analysis suggests the successful implementation of the MOU could result in a higher target price of S$0.97-1.14. Maintain BUY.



WHAT’S NEW


A possible partnership with excellent potential. 

  • Y Ventures (YV) is signing a Memorandum of Understanding (MOU) with SingPost to potentially collaborate on an e-commerce buying platform for cross border purchases and a logistics-related technology to enhance efficiency across the vertical logistics chain. 
  • At this stage, the MOU is not legally binding, except for certain provisions relating to, among others, exclusivity and confidentiality.

2017 earnings looks weak but due to one-offs, non-operational and timing issues. 

  • The group’s 2017 net loss of US$0.9m looks weak but it was distorted by one-offs and non-operating items. These included IPO expenses, costs related to its Faire Leather launch in late-17 (but recognition of revenue in 2018), forex losses and a property revaluation loss of US$0.2m. Adding back these items, we estimate Y Ventures would have been profitable with net profit closer to US$1m. 
  • In addition, there were other costs incurred in 2017 for projects and products with revenue recognition in 2018. More importantly, investors should look beyond 2017 and focus on the robust 2018-19 earnings outlook, with net profit projected at US$2.7m in 2018) and US$4.1m in 2019 (+53% y-o-y).



STOCK IMPACT


Endorsement by reputable partner. 

  • We view the potential partnership between Y Ventures and SingPost very positively. The MOU with SingPost lends a further endorsement of Y Ventures’ track record and data analytics capability, although the MOU is not legally binding at this stage. 
  • As for SingPost, its partnership with Y Ventures also positions the group well to further build on its eCommerce and Logistics division with little or no capital outlay, we estimate.

What’s a cross-border buying platform? 

  • We suspect the cross border buying platform is basically a global shopping concierge which allows shoppers to buy from overseas websites that do not ship to the shoppers’ home country. Although this is not a new concept, with relatively similar platforms such as comGateway and ezbuy, we believe what differentiates Y Ventures and SingPost’s platform from competitors include the data analytics of Y Ventures which could be used to curate the product offerings to its target market. 
  • In addition, we expect SingPost will handle the logistics to provide timely delivery at competitive pricing. All these bode well for the success of the new platform.

Extremely scalable and provides upside to earnings. 

  • Although the new platform has not been launched, we are hopeful on prospects, given the scalability of the platform. In addition, the cost to develop is unlikely to be high as this is not an asset-intensive investment but mainly staff costs. 
  • SingPost has a service called vPost, which also allows global shopping. However, we think the JV is differentiated through the strong data analytics input from Y Ventures. 
  • According to a report by Google/Temasek, the Southeast Asian e-commerce market is extremely dynamic. The gross merchandise value is estimated at US$10.9b in 2017 and projected to grow to US$88.1b in 2025.

New online distribution brands to add to 2019 growth. 

  • Y Ventures has secured online distribution rights for over 20 new brands, such as personal care brand Footpure, consumer electronics brand Lowepro, health & wellness brand Shanti Switchel, F&B brand Mavella, maternity brand Mater Mothers’ Hospital, among many others. While these new brands may not immediately contribute significantly to bottom line given the need to build awareness, we think this is a reaffirmation of its capabilities. 
  • On the average, we conservatively estimate each of these brands could contribute revenue of US$100,000 per year.


EARNINGS REVISION/RISK


Strong earnings outlook, with possible upside in 2019 from new platform. 

  • We raise our 2018-19 net profit forecasts by 4% and 5% to factor in more third-party online sales and the new distribution rights of brands that were announcement previously. At this stage, since the MOU is non-binding, we have not factored this into our forecast.
  • Potentially-accretive M&A is another option after the rise in Y Ventures’ share price and its strong financials.


VALUATION/RECOMMENDATION


BUY with target price of S$0.80, and before accretion from new platform.

  • Following our earnings and revenue upgrade, we raise Y Ventures’ target price to S$0.80, based on 2.6x 2019F P/S, which is at a 20% discount to listed peers’. Our valuation could have upside as we have not assumed an uplift from the new platform since this is only an MOU. However, with the support of SingPost and Y Ventures’ proven data analytics capability, we are hopeful for the success of this platform. 
  • In terms of sensitivity analysis, should the platform deliver annual sales of US$10m-20m in 2019, our target price could rise to S$0.97-1.14. The potential sales of the platform are roughly based on a 0.05-0.1% market share of the Southeast Asian e-commerce market in 2019 (estimated GMV of US$18.4b, based on growth rates implied by the report “e-Conomy SEA Spotlight 2017 by Google and Temasek).

Sanity checks using PEG looks favourable compared to market’s. 

  • Our valuation is based on 2,6x 2019F P/S, which is at a 20% discount to listed peers’. We opt to be conservative given Y Ventures’ smaller market capitalisation and limited earnings visibility. 
  • As a sanity check, our P/S-based target price of S$0.80 suggests a PEG valuation of 0.86x (based on 3-year EPS CAGR since 2016), which compares with the broader market’s PEG of 3.84x




Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2018-03-05
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.80 Up 0.65



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