SINGAPORE (Jan 29): Phillip Capital is initiating coverage on data analytics-driven e-commerce firm Y Ventures Group with a “buy” recommendation and a target price of 70 cents.
The target price is based on an estimated price-to-earnings multiple of 30 times for FY18.
“It is particularly challenging to find the right valuation model for Y Ventures due to its unique business model within the region,” says Phillip’s research team in a report on Monday.
As such, the research house is pegging Y Ventures to other e-retailers from the US and Europe, which analysts note can trade at “an astronomical 70x to 80x PE”.
“Due to the smaller scale and difference in business model, we are adopting a more conservative valuation for Y Ventures,” Phillip Capital says.
“On a price to sales metric, our target price will imply 3.5x FY18e earnings,” it adds. “This will appear expensive compared to its peers.”
However, Phillip Capital says it believes such higher valuations is justifiable, on the back of the more profitable nature of Y Ventures’ revenue plus the infancy stage of its growth.
Y Ventures uses data analytics to determine the most popular product categories, most sought-after product features, price trends, and competitive landscape.
It then uses this information to sell such products on online marketplaces such as Amazon.com, eBay, and Lazada.
Y Ventures sells the products either as an e-commerce retailer or distributor of third party brands; a partner of the brand owner or manufacturer to create a new product; or under its own brand name.
Already, the global internet retail market expected to grow at an estimated compound annual growth rate (CAGR) of 10.7% over FY16 to FY20 to a size of US$1.8 trillion ($2.4 trillion) by FY20E.
However, Phillip Capital opine that the Singapore-based Y Ventures could grow at an even faster rate, on the back of “huge growth opportunity” in its own backyard of Southeast Asia.
According to a report by Google and Temasek, Southeast Asia's business-to-consumer (B2C) e-commerce is set to reach over US$88.1billion by 2025, more than eight times larger compared to 2017.
See: E-commerce to fuel SEA’s US$50 bil internet economy
“Y Ventures is already working with all major online marketplaces in Southeast Asia,” says Phillip Capital. “We believe Y Ventures is on a course for a 50% revenue CAGR the next two years.”
As at 11.52am, shares of Y Ventures are trading 1.5 cents higher at 45.5 cents, implying an estimated price-to-earnings ratio of 19.3 times for FY18.
