Y Ventures downgraded to Reduce by CGS-CIMB after erroneous accounting

U.S. five dollar currency note; taken September 2018.

CGS-CIMB downgraded Y Ventures to Reduce from Add after the company was forced to restate its first-half results as losses due to erroneous accounting entries.

The first-half results were restated to show higher operating expenditure of US$1.2 million, resulting in a new loss of US$1.0 million for the period, compared with a net profit of US$100,000 previously, CGS-CIMB said in a note last week.

Y Ventures also said it expected to report a net loss for 2018, mainly on a drop in profit margin, an increase in selling and administrative expenses and higher staff costs. It also pointed to a “surging trend” of the makers of fast-moving consumer goods selling directly to consumers online as well as an adverse impact from the trade war.

Y Ventures uses large e-commerce platforms, including Lazada and Amazon, to distribute third-party products across multiple countries while incorporating a data-analytics service.

The gross profit margin was around 33.4 percent in the restated results for the first half of 2018, compared with 40.8 percent in the year-earlier period, Y Ventures said. CGS-CIMB said it was the company’s lowest gross profit margin since 2014.

The brokerage also said the trend of manufacturers selling directly to consumers online could persist, pointing to a rising number of Chinese sellers on Amazon marketplaces.

“As the trend continues, we think YVEN will not be able to compete with these sellers as they likely have a much lower cost base in online marketplaces, potentially further eroding gross margins and online sales in the U.S.,” CGS-CIMB said. It noted that around 70-80 percent of its 2017 sales were from U.S. online marketplaces.

“A strong surge in online sales in Southeast Asian marketplaces could potentially be a saving grace although this might not offset its declining U.S. online sales, in our view,” the note said.

CGS-CIMB lowered its gross margin assumptions to 30 percent for its 2019-20 forecasts, and lowered its revenue estimates for those years by 60-75 percent on expectations the company will cut back on inventory purchases to manage cash flows.

“We do not anticipate a turnaround in the short term,” it said, adding it now expects losses for 2018-20, compared with its previous forecasts for profit.

It slashed its target price to S$0.10 from S$0.56.

Shares of Y Ventures ended Friday down 30.64 percent at S$0.12.


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