SINGAPORE (May 28): CGS-CIMB Securities is initiating coverage on Y Ventures Group (YVEN) with an “add” recommendation and a target price of 62 cents, representing an upside of close to 25% from its current trading price.
“YVEN is a proxy to rising e-commerce and big data trend with a turnaround story,” says analyst Colin Tan in a report on Friday.
The Singapore-based data analytics-driven e-commerce retailer and distributor currently has a presence in more than 20 online marketplaces globally, including Amazon, eBay, Qoo10, and Lazada.
In the FY17 ended December, YVEN sank into the red with losses of US$0.9 million ($1.2 million), despite a 17.4% increase in revenue to US$14.2 million.
The losses were mainly due to a surge in expenses.
Selling and distribution expenses grew 70.2% to US$3.3 million as a result of an increase in marketplace fees, fees to third-party logistics providers, and inventory & inbound services fees.
Meanwhile administrative expenses more than doubled to US$3.8 million due to a one-off impairment loss of property, plant & equipment (PPE), and IPO expenses incurred.
See: Y Ventures sinks into the red with US$0.9 mil loss in FY17
“We opine that YVEN is still in the early stages of proving its ability to use data analytics to compete with online retail distribution for big-brand products and consumer electronics goods,” Tan says. “However, we think the group could start to sell its analytics solutions to global brands and e-commerce platforms after establishing a track record in other product categories in the longer term.”
The way Tan sees it, this is similar to how Qlik offers its analytics platform to Lazada Group, which operates one of Southeast Asia’s most popular online marketplaces.
“Selling analytics solutions would help YVEN to achieve faster revenue growth with reduced working capital constraints, in our view,” he adds.
The analyst forecasts that YVEN’s core earnings per share (EPS) will grow at a compound annual growth rate (CAGR) of 207% from FY17-20, with net profit projected to recover and hit US$3.5 million in FY20.
Tan notes that YVEN is “solidly anchored” in the online distribution of books, with some 67-83% of its inventory purchases in FY14-16 comprising medical and academic textbooks from publishers.
“We expect strong consistent revenue growth from YVEN’s online book distribution/retailing business, supporting gross margins near the 40% level and our forecast of close to 39% revenue CAGR over FY17-20F,” Tan says.
Meanwhile, he points out that YVEN has been successfully tapping the US e-commerce growth, with 70-80% of its FY17 sales coming from US online marketplaces.
“YVEN is still in the early stages of growth, and yielded FY17 revenue of US$14 million – a diminutive amount compared to the close to US$450 billion total online retail sales in the US in 2017 (according to US Census Bureau’s estimates),” Tan says.
According to CGS-CIMB estimates, YVEN is currently trading at a CY19F price-to-earnings ratio (P/E) of 23.2 times, which is at close to 50% discount to its global ecommerce peers’ average of 45.0 times.
As at 12.15pm, shares of Y Ventures are trading 1.5 cents higher, or up 3.1%, at 49.5 cents.