Y VENTURES GROUP LTD.
SGX:1F1
Y Ventures Group Ltd - Leading The Charge
- Several SGX-listed companies have been mulling ICOs, but Y Ventures is leading the charge.
- While unorthodox, YVEN’s plans to raise US$20-50m via ICO (if successful) could be a re-rating catalyst.
- Plans to launch AORA in FY19F could also cement Y Ventures Group (YVEN)’s position as the first e-commerce platform to service cryptocurrency holders, which offers potential.
- Globally, market reaction has been positive at the onset of ICOs; Reiterate BUY call with Target Price of S$0.77.
Proprietary data analytics capabilities cement its position as a value-adding partner to traditional businesses.
- Y Ventures Group (YVEN) distributes products from third-party brands over some of the largest e-commerce platforms (including Amazon and Lazada) across ten countries. Unlike traditional distributors & e-commerce platforms, YVEN stands out for its provision of value-added data analytics service to brand partners, allowing them to adapt their products to the market's needs. In return, the brands offer significant price discounts to YVEN.
- The launch of private labels in areas where YVEN is confident of achieving strong sell-through rates based on analytics, as in the case of JustNile and Faire Leather Co, further augments margins.
~ SGinvestors.io ~ Where SG investors share
Multi-pronged approach to e-commerce driving 92% EBITDA CAGR over FY18F-20F.
- Earnings growth should primarily be driven by the
- Expansion of YVEN’s brand partner network and product range,
- Replication of the Elsevier partnership model to other book publishers and new product categories, and
- Acceleration of private label projects, which tend to have longer gestation periods but offer higher margins.
Cryptocurrency and AORA plans a wildcard but hold potential.
- Through its proposed Initial Coin Offering (ICO) and launch of its cross-border purchase platform AORA, YVEN could be the first e-commerce platform to service the cryptocurrency community, which offers significant long-term potential (if successful).
- Due to limited visibility for now, we have yet to factor this into our projections.
Valuation:
- Reiterate BUY call and Target Price of S$0.77, based on 20x FY19F EV/EBITDA, at a 15% discount to larger peers’ 23x due to YVEN’s smaller scale. This translates into 3.2x FY19F EV/Sales vs peers’ 3.8x.
- Our bear-case valuation of S$0.47 suggests an attractive risk-reward ratio at current levels.
Key Risks to Our View:
- Execution and inventory-related risks,
- Platform-specific risks,
- Equity fund raising, and
- Concentration risk.
YVEN – The first e-commerce platform to service the cryptocurrency community?
Launch of AORA ICO a first among SGX-listed peers.
- On 31 July 2018, YVEN’s 60%-owned subsidiary Luminore 8 (“Luminore”) launched an Initial Coin Offering (ICO) of its own utility token, the AORA Coin, to fund the development and commercial launch of the AORA platform. The ICO aims to raise US$50m, with a soft target of US$20m and will close on 30 November 2018.
- While several other SGX-listed small- to mid-cap companies have been mulling ICOs for their own utility tokens, we note that they have yet to come to fruition and are likely to be in their planning stages. Potential SGX-listed ICO debutants include:
| Company | ICO Objectives | Rights Granted to Token Holders |
|---|---|---|
| Spackman Entertainment SGX:40E (5 Feb 2018) |
K Coin: To fund artist and content projects. | Access to/purchase of premium content, fan meetings, concerts and merchandise, etc. |
| Sakae Group SGX:5DO (8 Feb 2018) |
Bitecoin: To reduce transaction costs for merchants and optimise food retail processes to achieve greater efficiency and improve overall customer experience. | Merchants: Access to data on consumer demographics and feedback, etc. Consumer: F&B purchases, bespoke rewards, personalised promotions, etc. |
| Hatten Land SGX:PH0 (22 May 2018) |
Hotel Tokens: To launch SEA’s first hospitality blockchain platform and rewards programme to hotel guests and shoppers. | Tokens can be exchanged for discounted hotel packages, rewards programme can also be used as rebates. |
About AORA.
- The AORA platform is a buying concierge platform that was developed on the back of a MOU with logistics partner, SingPost.
- Through programmatic buying capabilities and its own blockchain payment gateway, the AORA platform seeks to enhance the cross-border buying experience for customers through:
- Savings and rebates,
- personalised shopping services, and
- seamless end-to-end forwarding services.
- Access to popular webstores and marketplaces through AORA will be added progressively – starting with Walmart, Taobao, Amazon and TMALL in 2Q19. Over time, AORA aims to provide users with seamless access to all webstores globally.
Satisfying multiple business objectives simultaneously.
- Previously in our initiation report “Data-driven e-commerce player”, we highlighted a possible equity fund raising by YVEN to grow its business given capital requirements under its inventory-taking model and investments into the AORA project. From a business perspective, the ICO helps YVEN achieve a similar objective (and more), as:
- Capital raised can be used to accelerate product development and sales growth, and
- As a marketing tool for early user engagement ahead of the launch of its AORA platform.
Gaining access to an under-served market.
- Importantly, the ICO will help raise visibility for the AORA platform and provide YVEN with valuable screen-time with its intended audience – cryptocurrency enthusiasts. While volatile prices, hefty fees and lengthy transaction times have hampered the mass adoption and acceptance of cryptocurrencies for purchases among consumers and retailers, demand has been increasing rapidly.
- According to NetCents, retail purchases using Bitcoin grew twentyfold from US$9.2m/month in 2013 to c.US$190.2m/month in 2017. The firm also predicts that the e-Wallet industry could make up 46% of global e-commerce payments by 2021 vs 18% in 2016. Meanwhile, adoption by retailers remains slow – Cointelegraph estimates that only 11,291 brick-and-mortar retailers accepted Bitcoin payments in 2017.
- When launched, the AORA platform will likely be the first blockchain-enabled buying concierge platform accepting both cryptocurrency and fiat currency payments. According to YVEN, popular currencies such as Bitcoin and Ethereum will be accepted on the platform, but the AORA Coin will serve as the primary token for access.
- This allows cryptocurrency holders to purchase real world goods and services seamlessly - an underpenetrated segment in our opinion. While the viability of the platform remains to be seen, it could provide the group with significant untapped potential, if successful.
Risk-reward to equity holders.
- Unlike secondary placements or rights issues, an attractive attribute of YVEN’s proposed ICO lies in the ability to obtain funding without dilution of benefits to existing holders.
- Meanwhile, we believe that risks to YVEN (and its underlying shareholders) are largely confined to:
- the cost of bringing the ICO to fruition - US$500,000, which could have otherwise been used to grow its core distribution business, and
- possible litigation risk from token holders.
- However, compared to smaller, unregulated ICO aspirants, we would argue that the degree of information asymmetry and thus risk of litigation for YVEN is significantly reduced given its public listing.
Accounting treatment still unclear.
- Given nuances relating to the ICO process and AORA tokens that may be held in reserve post ICO, uncertainty over the accounting treatment remains.
- We believe this will be addressed in the subsequent months as YVEN is in the final stages of appointing a professional advisor.
Market reaction tends to be positive at the onset.
- Few listed companies have explored ICOs thus far but those which have tend to exhibit positive share price impact in the immediate term – Overstock shares gained > 70% between date of announcement and commencement of token sale, while Kodak jumped c.240% in two sessions following the announcement. Similarly, Renren also witnessed a c.48% surge in share price upon announcing ICO plans.
- While longer-term trends were less clear, we observed that share price premium rarely held over the medium term.
Reiterate BUY with Target Price of S$0.77.
- While unorthodox, we believe that the merits of YVEN’s ICO initiative and longer- term prospects for the AORA platform should not be ignored. Pending further clarity on the appropriate accounting treatment and completion of its ICO (if successful), we have not imputed upside from AORA for now.
- Supported by the recent onboarding of new publishers and exclusive online distributorship agreement for Disney products in SEA alongside Beast Kingdom, we reiterate our Base Case for YVEN. Maintain BUY with Target Price of S$0.77.
- A larger-than-expected cash drain from the ICO process may result in a more gradual growth profile for YVEN’s core distribution business, which could take us closer to our bear-case valuation of S$0.47.
Carmen Tay
DBS Group Research Research
|
Sachin MITTAL
DBS Research
|
https://www.dbsvickers.com/
2018-08-02
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