SINGAPORE (Oct 30): DBS Group Holdings and UOB KayHian see Y Ventures Group’s reduced 20% stake in a JV company for the development of the Aora platform and the ICO (Initial Coin Offering) of Aora Coins as a positive move, given the uncertainties linked to the ICO process.

To recap, Y Ventures will receive $400,000 in cash from its JV partner for the smaller stake. The JV will also repay all loans, debts and other amounts due to Y Ventures.

Should the JV company issue shares in the next two years, Y Ventures will be issued shares at a nominal consideration to maintain its 20% stake in the JV company. It also has an option to require its JV partner to purchase the company’s entire shareholding, at any time within five years.

In a recent report, DBS Group Research lead analyst Ling Lee Keng says Y Ventures’ management can channel its resources back to the core business.

Although Ling remains positive on Y Ventures’ long-term growth potential, he expects cost escalations in the near term, largely attributable to the group’s ongoing expansion.

DBS is projecting FY18F revenue of US$22 million vs consensus’ estimate of US$25 million as Y Ventures could take time in setting up new logistics and distribution networks, potentially delaying revenue contributions from new partnerships.

DBS is maintaining a “hold” with a lower target price of 34 cents based on 14 times FY19F EV/EBITDA and would re-visit its recommendation once Y Ventures’ business is on a firmer footing.

In a research for retail investors, UOB KayHian analyst Lucas Teng still believes Aora is a potential game changer and a strategic area for Y Ventures in a growing e-commerce market.

Though UOB had initially hoped that the regulatory hurdles could be overcome, “it appears that the higher standards required of a listed company would result in higher compliance costs and management time to navigate”, says Teng.

Also, the lack of certainties on aspects such as accounting treatment on the recognition of Aora Coins is another hurdle.

UOB is maintaining its “buy” with a revised target price of 57 cents, based on an updated multiple of 2.1 times 2019F P/S, which is at a 25% discount to listed peers.

“The stock price has declined significantly and we believe the current price offers longer-term investors a good entry price,” says Teng.

Year to date, shares in Y Ventures are down 14.3% to 24 cents.