Innity- an internet play!

Background

Innity Corporation Bhd (Innity) is involved in the provision of online advertising solutions. To learn more about how this company uses the internet to grow beyond boundaries, go here.

The Trend is Your Friend

In a recent article in Business Insider, we learn that Online Advertising has been rising while traditional Offline Advertising has been sliding. From Chart 1 below, we can see the share of Online Advertising has increased from 23% of Total Media Advertising in 2006 to 38% in 2011 while Offline Advertising has declined from 77% to 62%.


Chart 1: US's Online & Offline Advertising trend for the past 5 years

During the same period, the traditional Offline Advertising which had declined are print (55%), outdoor (50%) and radio (36%). TV advertising remains steady at 41-42%. (Note: This data may explain why the Star newspaper has pushed aggressively into the online space.)


Chart 2: US's Media Advertising trend for the past 5 years

Recent Financial results

Since its listing, Innity's top-line has been on the rise. While its bottom-line has been rather erratic, the noticeable trend is upward. For QE30/6/2012, its net profit rose 550% q-o-q or 67% y-o-y to RM1.1 million while revenue rose 46% q-o-q or 47% y-o-y to RM12 million. The sharp rise in top-line & bottom-line could be attributable to the build-up to the Olympic but even without this big event, I believe the upward trend will still be positive.



Table 1: Innity's last 8 quarterly results


Chart 3: Innity's last 17 quarterly results

Financial Position

As at 30/6/2012, Inniti's financial position is deemed healthy. Current ratio stood at 2.5 times while gearing ratio is negligible at 0.02 time. Its cash reserve stood at RM7.0 million or 5 sen per share.

Valuation

Innity (closed at RM0.46 yesterday) is now trading at a PE of 17 times (based on last 4 quarters' EPS of 2.75 sen). Based on CAGR for the top-line of 50% for the past 2 years, I would rate the PE multiple for Innity is acceptable for a growth stock.

Technical outlook

Innity broke above the strong horizontal resistance of RM0.30 in early part of the year. Its immediate resistance is the horizontal line at RM0.50. Its MACD has hooked down- signaling near-term weakness. If this weakness continued, the share price may slide back to RM0.30-0.35.


Chart 4: Innity's weekly chart as at October 1, 2012 (Source: Tradesignum)

Conclusion

Based on the favorable advertising trend, satisfactory financial performance and strong financial position, Innnity is a stock worth investing for long-term. However, its technical weakness could mean that the stock could consolidate its recent gain and a pause in its strong rise in the past 18 months. This could present a good opportunity to get into the stock.

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.