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.

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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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.

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.

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.

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