Y Ventures Group Ltd - DBS Research 2019-01-28: Accounting Errors In 1H2018 Results; Expect Full Year Net Loss

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Y VENTURES GROUP LTD. (SGX:1F1)

Y Ventures Group Ltd - Accounting Errors In 1H2018 Results; Expect Full Year Net Loss

• Accounting errors in 1H2018 financial statements; net loss of US$1.2m vs profit of US$0.13m reported previously.
• Expect loss for FY2018.
• Cut earnings and target price; suspending coverage.

What’s New

Accounting errors in 1H2018 financial statements; net loss of US$1.2m, vs profit of US$0.13m as reported previously.

• Y VENTURES GROUP LTD. (SGX:1F1) reported certain administrative inadvertences in its 1H2018 results published in August 2018. As a result, there was an overstatement of approximately US$1.3m of profit for the Group in 1H2018.
• The administrative lapses were mainly related to overstatement of “Inventories”, “Property, plant and equipment” and “Revenue” and understatement of “Trade and other receivables”, “Cost of sales” and Administrative expenses” as at 30 Jun 2018.
• Specifically, these items were:
  1. US$1.5m being erroneously recorded as “Inventories”
  2. US$20.5m being erroneously recorded as “Property, plant and equipment”
  3. US$0.17m being erroneously omitted from “Trade and other receivables” and
  4. US$0.2m being erroneously omitted from “Administrative expenses”
• The Group has rectified these errors and issued restated 1H2018 results, showing a net loss of US$1.2m, vs profit of US$0.13m.

Expect loss for FY2018.

• As such, Y Ventures Group is expecting to report a net loss for FY2018. The net loss is mainly attributable to a drop in profit margin, increase in selling and administrative expenses and higher staff cost.
• Factors which impacted the Group in FY2018 include the surging trend of manufacturers going direct to consumers by selling their products online and adverse impact due to the trade war.
• In addition, the Group also incurred higher expenses due to expansion of online sales to South East Asia markets and forming partnerships with new suppliers.

Cut earnings; suspend coverage.

• While Y Ventures Group is making efforts to diversify from its core book publisher segment, focusing on getting more brand partners especially in the budding Home and Décor and FMCG categories, and also building up its higher-margin private label segment, we believe these initiatives will take time to see meaningful results.
• We remain cautious and have cut FY18E/FY19F earnings. We are now expecting net loss of US$2.5m/US$1.6m for FY18E/FY19F vs profit of US$0.7m/US$2.5m previously.
• Furthermore, the investment in the AURO ICO (Initial Coin Offering) in FY18, which Y Ventures Group has since reduced its stake to 20%, has also diverted resources away from the core business and disrupted the growth momentum of the Group.
• After cutting our earnings estimates, we arrive at a lower Target Price of S$0.11, based on 14x FY19F EV/EBITDA which represents a 40% discount to larger peers. We are suspending coverage on the stock, until a sustainable improvement in revenue and earnings can be delivered.
• Our previous recommendation was HOLD.

Lee Keng LING DBS Group Research | Sachin MITTAL DBS Research | https://www.dbsvickers.com/ 2019-01-28

SGX Stock Analyst Report NOT RATED MAINTAIN HOLD 0.11 DOWN 0.340