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Thursday, February 25, 2016

Innity: The Next Jobstreet??

Background

Innity Corporation Bhd (Innity) is involved in the provision of online advertising solutions. According to Warren Raisch - quoting from GO-gulf.com - global online advertising is expected to grow to 18% of 2016's total advertising spending from 13% in 2011. At the same time, the online advertising in US is expected to grow from 25% to 37% of total advertising spending. For more go here.


Diagram 1: Global & US's Online Ad Spending

Experienced & Committed Shareholders

The shareholders of Innity include D.A. Consortium Inc, which is the online advertising specialist within the Hakuhodo DY Group of Japan. Hakuhodo is one of the world's leading advertising & marketing groups. In addition, it also counts Jobstreet Corp Bhd as one of its major shareholders. As you may know, Jobstreet is one of the great success stories of Malaysia IT industry.

I have tabulated the shareholding structure of Innity below. Besides the reduction/change in percentage shareholding in 2013 to accommodate the entry of D.A. Consortium Inc as a shareholder, we can see that over the past 1 year, some shareholders have raised their shareholding. This led to further concentration of shares held by these 8 shareholders, from 80% in 2011 to 84% today.


Diagram 2: Innity's Shareholding Structure  

Results Update

I have appended below the latest results for Innity for QE31/12/2015. The most 2 important things to note are:
1) Revenue are on rise
2) Net profit at RM1.48 million has surpassed the high achieved in QE31/12/2013.


Table: Innity's last 8 quarterly results


Chart 1: Innity's last 31 quarterly results

Financial Position

As at 31/12/2015, Inniti's financial position is deemed healthy. Current ratio stood at 2.0 times while gearing ratio is negligible at 0.9 time.

Valuation

Innity (closed at RM0.44 as at 4:00pm today) is now trading at a PE of 20 times (based on last 4 quarters' EPS of 2.12 sen). While this PER is still very high, Innity could well on the cusp of sharp rise in its revenue and earnings. If so, the PER could easily drop back to much more manageable level.

Technical outlook

Innity is trapped within a long-term uptrend line (support at RM0.30) and an intermediate downtrend line (resistance at RM0.43). A convincing breakout above the RM0.50 could signal the start of the upleg for this stock.


Chart 2: Innity's monthly chart as at Feb 25, 2015_3.00pm (Source: ShareInvestor)

Conclusion

Based on the favorable advertising trend, satisfactory financial performance and strong financial position, Innnity is a stock worth investing for long-term. Those seeking a quick trade should look somewhere else because Innity is not a liquid nor an active stock which makes exit very challenging.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Innity.

2 comments:

BursaNinja91 said...

Hi Mr.Alex,

I've some doubt regarding the performance of Innity. Why is this company reported losses in Q1 of most of the financial years since it was listed. Kindly share your view on this.

Thanks a lot!

Best regards,
Bernard

Alex Lu said...

Hi BursaNinja91

I can't explain why Innity chalked up losses in its 1Q for past 2 years. I think it is due to lower gross profit margin as well as the way it booked in its operating expenses. Its gross profit margins in the past 2 years moved as follows:
* 4Q2016>1Q2017>2Q2017 (GP margin: 45% > 42% > 66%)
* 4Q2015>1Q2016>2Q2016 (GP margin: 37% > 42% > 48%)

In addition, operating expenses seems to be higher in the 1Q as follows:
* 4Q2016>1Q2017>2Q2017 (operating expenses: RM10.76m > RM10.8m > RM8.8m)
* 4Q2015>1Q2016>2Q2016 (operating expenses: RM6.76m > RM6.9m > RM6.7m)

These happened because the way expenses & billings are carried out. And, that's why I believe that we should smooth out the lumpiness of revenue & expenses to give a less erratic picture of a company's operation.

Overall, I don't think this should be a serious concern in our analysis.