Y Ventures Group Ltd - DBS Research 2018-10-29: Back To Core Business


Y Ventures Group Ltd - Back To Core Business

  • Reducing investment in AURO ICO a positive move. 
  • Time and resources can be channeled back to core business. 
  • Return of S$0.8m can help to expand business to drive sales. 
  • Maintain HOLD with a lower Target Price of S$0.34. 

Reduction in AURO Initial Coin Offering (ICO) investment a positive move, in our view.

  • The management can now channel its resources back to the core business, focusing on getting more brand partners to drive growth, and also on its higher margin private label segment.

  • While we remain positive on Y Ventures Group (YVEN)’s long-term growth potential, we expect cost escalations in the near term, largely attributable to the Group’s ongoing expansion.
  • Maintain HOLD with a lower Target Price of S$0.34. We would re-visit our recommendation once YVEN’s business is on a firmer footing.

Where We Differ:

  • Our FY18F/19F revenue and EBITDA are below consensus. We project FY18F/19F revenue of US$22m/US$32m vs. consensus’ estimate of US$25m/US$36m. For FY18F/19F EBITDA, our estimates are US$1.2m/US$3.7m vs. consensus’ US$2.6m/US$4.7m.
  • Y Ventures Group could take time in setting up new logistics and distribution networks, particularly in segments other than books, potentially delaying revenue contributions from new partnerships.

Potential Catalyst:

  • Onboard more brand partners; private labels generating higher sales. Securing more brand partners should help to generate higher revenue, while greater demand for private label products should help to boost margins.

Key Risks to Our View:

  • Bear case valuation of S$0.22 if expansion fails to materialise into sales. Longer gestation period for new products as YVEN expands into new categories, and impute lower growth given upfront purchase requirements inherent in YVEN's inventory- taking model, and coupled with higher operating expenses could translate to FY19F EBITDA of just US$2.6m vs. our base case assumption of US$3.7m.

WHAT’S NEW - Reducing investment in AURO ICO

  • Y Ventures Group (YVEN) has decided to reduce its stake in Luminore, the joint venture company (JVC) that is involved in the Initial Coin Offering (ICO) for the AORA platform.
  • To recap, in July 2018, YVEN, via its 60% stake 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 AORA platform is a buying concierge platform that was developed on the back of a MOU with logistics partner, SingPost (SGX:S08).
  • Through programmatic buying capabilities and its own blockchain payment gateway, the AORA platform seeks to enhance the cross-border buying experience for customers.

Rationale for the reduction in stake:-

  • High time and resources needed. As a subsidiary the JVC to comply with stringent internal protocols. This not only involves compliance requires the management to divert and resources than matters, hence attention core business. Going YVEN will involved management and JVC ICO and AORA.
  • Lack of issues, especially in accounting standards impact. Being the first listed ICO for its own YVEN issues, including the absence of treatment of the AORA and impact of the ICO on statements throughout the AORA and AORA.
  • Enables AORA more nimble agile manner. With just a 20% JVC can function as an independent entity requirements of a listed entity. A reduction work would enable growth opportunities in a manner, and to AORA Platform market.

Y Ventures to receive S$0.4m from the reduction in stake; and S$0.406m from repayment of loan.

  • Y Ventures Group (YVEN) would receive S$0.4m from the reduction in stake in the JVC to 20% from 60%, which roughly equates to its initial cost of investment of US$0.5m for a 60% stake. The JVC shall also repay the S$0.406m interest-free loan extended by YVEN.
  • In addition, for the next two years, should the JVC issue any new shares, YVEN is entitled to be issued shares at a nominal consideration, to preserve its 20% stake in the JVC.

Our Thoughts

Positive move in our view; shifts focus back to core business.

  • We view this move positively as the management of Y Ventures Group can now channel its resources back to the core business. The Group can now focus on getting more brand partners, especially outside of the book publisher segment, in favour of the budding Home and Décor and FMCG categories.
  • In addition, the management can also focus on its higher margin private label segment, which includes JustNile and Faire Leather brands, as this division is gaining traction with sales expected to pick up.
  • The return of S$0.806m is handy, as operating expenses are expected to be high in the next 1-2 years as the Group is still in an expansion mode. The money can also help to provide working capital for Y Ventures Group to take on more inventory to drive sales.

Maintain HOLD with a lower Target Price of S$0.34.

  • No change in earnings forecasts as this transaction has no impact on the profit & loss statement.
  • Our Target Price is cut to S$0.34 (prev S$0.48), based on 14x FY19F EV/EBITDA, as we use a higher discount of 40% (vs 15% previously) to larger peers’ 23x, given Y Venture Group’s much smaller sale, and potentially slower revenue growth due to the inventory holding business model.

Lee Keng LING DBS Group Research | Sachin MITTAL DBS Research | https://www.dbsvickers.com/ 2018-10-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.34 DOWN 0.480