Y Ventures Group Ltd - CGS-CIMB Research 2018-08-15: 1H18 Look To Better Sales In 2H

Y Ventures Group Ltd - CGS-CIMB Research 2018-08-15: 1h18 Look To Better Sales In 2h Y VENTURES GROUP LTD. SGX:1F1

Y Ventures Group Ltd - 1H18 Look To Better Sales In 2H

  • Y Ventures (YVEN)'s results disappointed, with 1H18 net profit forming 9%/5% of our/consensus full-year forecasts.
  • Negative surprise was mainly due to higher selling and distribution costs incurred from expansion of logistics and distribution channels in the UK.
  • Guided for continued high operation costs, partially from operations to support manufacturing of private label products in China.
  • We expect better earnings for the rest of FY18F as second half is seasonally stronger.
  • Maintain ADD with lower Target Price of S$0.56.

Not so great first half despite turning profitable

  • Y Ventures (YVEN) registered 1H18 net profit of U$0.13m, accounting for 9%/5% of our/consensus full-year forecasts. Excluding IPO/listing expenses, its core net profit declined 71.5% y-o-y to US$0.15m.
  • Revenue for 1H18 gained 27.4% y-o-y to S$9.3m with books contributing c.70%. Gross margin lifted to 44.8% in 1H18 versus 40.8% in 1H17 and management believes it could stay above 40% going forward.

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High operational costs led to disappointment

  • Selling and distribution expenses rose to US$2.4m, representing 26% of revenue in 1H18 vs. 22% of revenue for 1H17. Management said the increase is related to logistics setup and expanded distribution channels in the UK to support new publishers that were on-boarded towards the end of last year.
  • Operational expenses for the quarter also included US$0.5m of start-up costs relating to new subsidiaries to support manufacturing of private label products and their upcoming AORA online platform development.

Second half seasonally stronger for online sales

  • Management guided for stronger sales in 2H18 as Aug-Sep period is typically a peak period for online sale of books. Inventory as at end-Jun was US6.6m which includes stockpiles from newly on-boarded publishers.
  • We expect average inventory turnover days of c.210 (annualised) for 2H18 to gravitate towards 120 days gradually over in FY19-20F.

More innovative products in the pipeline

  • YVEN is looking to expand its products range which could include a few innovative products similar to that of its Faire Leather products over the next 6-12 months. Crowdfunding would be tapped into to help fund the cost of manufacturing of these products.
  • The group is also looking to include more toys in its product range following the tie-up with Beast Kingdom Co., Ltd, the licensee for official Disney products in Asia.

Maintain ADD with lower Target Price of S$0.56

  • Following its 1H18 results, we lower our FY18-20F EPS forecasts by 9.6-34.1%. Our Target Price is thus adjusted accordingly to S$0.56, based on 30x FY19F P/E, representing 24% discount to global e-commerce peers’ average of 39.5x. Maintain ADD.
  • Re-rating catalysts could come from stronger-than-expected earnings and on-boarding of more branded partners.
  • Key risks include overstocking of inventories and termination of distributorship agreements.

Colin TAN CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-15
SGX Stock Analyst Report ADD Maintain ADD 0.56 Down 0.620