Hot stock: Y Ventures down 21% on accounting errors for H1 2018 earnings

SHARES in catalist-listed Y Ventures have shaved off 20.8 per cent during trading in Monday's early session, with the e-commerce outfit's stock declining 2.5 Singapore cents to 9.5 Singapore cents with about 330,900 shares changing hands as at 11.55am. It was among the Singapore bourse's biggest decliners in percentage terms.

In a research note on Monday, analysts at DBS Equity Research have cut their earnings estimates on the firm and have suspended coverage on the stock as accounting errors surfaced from its H1 2018 financial statements - published in August 2018.

As a result, the brokerage has cut its 12 month target price of the stock to 11 Singapore cents from 34 Singapore cents. It previously had a "hold" call on the e-commerce firm.

Y Ventures initially reported a profit of about US$130,000 for the period. It has since been revised it to a net loss of US$1.2 million.

In its report, DBS said that 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 June 30, 2018.

Consequently, there was an overstatement of about US$1.3 million of profit for the firm.

DBS analysts Ling Lee Keng and Sachin Mittal said that coverage of Y Ventures will be suspended until "a sustainable improvement in revenue and earnings can be delivered".

The analysts are now expecting Y Ventures to report a net loss of US$1.6 million for fiscal 2019 and US$2.5 million for fiscal 2018, as opposed to a net profit of US$700,000 for fiscal 2019 and US$2.5 million for fiscal 2018 (see amendment note).

In October 2018, the firm said that it will cut its 60 per cent majority stake to a 20 per cent minority stake in a cryptocurrency joint-venture (JV) project. Y Ventures cited compliance requirements and accounting uncertainty over the initial coin offering (ICO) as factors that contributed to it reducing its stake.

As a result of reducing its stake, Y Ventures will receive S$400,000 from JV partner Arke Blockchain Engineering. Arke also has the right and option to buy Y Ventures' remaining stake within a five-year period.

In July 2018, Y Ventures became the first Singapore-listed firm to launch an ICO of its own, involving its new AORA Coin cryptocurrency as well as utility tokens called AORA Coins, priced at 20 US cents apiece.

The AORA Coin is a utility token built on the Ethereum network, with 625 million tokens minted and 250 million saleable tokens.

The expected proceeds of US$50 million were intended to go towards development of the group's AORA e-commerce platform.

The ICO opened on July 31, 2018 and closed on Nov 30, 2018.

Y Ventures' board said that compliance costs for the joint-venture company will be "significantly higher" if it is the subsidiary of a Singapore-listed company, in a scenario that "also requires the management to divert more time and resources than initially considered" to compliance.

It said that the change in joint-venture shareholding "will enable the AORA Platform to pursue growth opportunities in a more nimble and agile manner", and added that the joint-venture company will still be looking into working with Singapore Post (SingPost) on the platform and logistics technology.

AORA, which is slated for launch in the first half of 2019, is being developed in partnership with SingPost.

The board said that Y Ventures expects to record an accounting gain from the reduction in its stake.

Amendment Note: In a previous version of the article, we stated that the DBS analysts are expecting Y Ventures to report a net loss of between US$1.6 million and US$2.5 million, as opposed to a net profit of between US$700,000 and US$2.5 million. This statement is incorrect. The article has been amended to reflect the correct expected and forecasted earnings. We apologise for the error.