CFA Society Singapore
SINGAPORE (Jan 28): DBS Group Research is suspending coverage of Y Ventures Group until a sustainable improvement in revenue and earnings can be delivered.
In a filing on Jan 21, Y Ventures reported it had made certain inadvertent administrative errors in the 1H18 results that was published in August 2018.
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: US$1.5 million being erroneously recorded as “Inventories”; US$20,500 being erroneously recorded as “Property, plant and equipment”; US$0.17 million being erroneously omitted from “Trade and other receivables” and US$0.2 million being erroneously omitted from “Administrative expenses”.
As a result, there was an overstatement of US$1.3 million ($1.8 million) of 1H18 profit.
This also means 1H18 ended in a net loss of US$1.2 million, versus profit of US$0.13 million as reported previously.
Y Ventures says it has promptly rectified the errors and issued the restated 1H18 results.
However, the group expects to report a net loss for FY18 mainly due to a drop in profit margin, increase in selling and administrative expenses and higher staff cost.
Factors which impacted the group in FY2018 included more manufacturers going direct to consumers by selling their products online and impact due to the US-China trade war.
In addition, the group incurred higher expenses due to expansion of online sales to South East Asia markets and forming partnerships with new suppliers.
In a Monday report, DBS analyst Ling Lee Keng says although the group is making efforts to diversify from its core book publisher segment and focus on getting more brand partners especially for its budding home and décor and FMCG categories, and building up its higher-margin private label segment, “these initiatives will take time to see meaningful results”.
Furthermore, the investment in the AORA ICO (Initial Coin Offering) in FY18, which the group has reduced its stake to 20%, also diverted resources away from the core business and disrupted the growth momentum of the group.
“We remain cautious and have cut FY18E/FY19F earnings. We are now expecting net loss of US$2.5 million/US$1.6 million for FY18E/FY19F vs profit of US$0.7 million/US$2.5 million previously,” says Ling.
“After cutting our earnings estimates, we arrive at a lower target price of $0.11, based on 14x FY19F EV/EBITDA which represents a 40% discount to larger peers.”
As at 3.30pm, shares in Y Ventures are down 1.6 cents or 13.3% at 10 cents.