Y Ventures downgraded by DBS on cost concerns, lower earnings forecasts

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DBS downgraded Y Ventures to Hold from Buy, pointing to near-term cost concerns, which it expected could lead to a range-bound stock price.

“While we remain positive on the long- term growth potential of YVEN, we revised down our FY18/19F ebitda by 56 percent/39 percent on the back of potential short-term delays in generating sales from new third-party brands, lower than expected sales of private labels due to challenges in establishing supply chains and cost escalation from expansion in geographical footprint and customer base,” DBS said in a note this week. Ebitda stands for earnings before interest, tax, depreciation and amortization.

DBS noted that its revenue forecasts were lower than the consensus.

“YVEN could take time in setting up new logistics and distribution networks, particularly in segments other than books, potentially delaying revenue contributions from new partnerships,: it said. “Operational expenses on the AORA platform for cross-border e-commerce and Chinese business are likely to grow in FY19F, with the launch of the platform and private labels in China in FY19F.”

DBS cut its target price on Y Ventures to S$0.48 from S$0.77 on the lower earnings forecasts.

“We would re-visit our recommendation once YVEN shows success in tackling these challenges,” it added.

But it set a bear case valuation of S$0.34 if expansion fails to result in sales.

DBS noted that Y Ventures first half revenue of US$9.3 million, up 27 percent on-year, was below its forecast for US$10.5 million, although it noted seasonality effects should result in a stronger second half. The peak season for book sales is in the second half, particularly August to September, while sales of Faire Leather and private labels should edge up in the holiday season, it said. Additionally, there will be contributions from the sale of Disney products, with the pact with Beast Kingdom, DBS noted.

Shares of Y Ventures were up 5.63 percent at S$0.375 at 10:36 A.M. SGT.

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