We foresee Catcha Media’s performance improving on the back of adex recovery and continuous enhancements in the internet service infrastructure. As its earnings are not meaningful yet - which is normal for a young dot-com - we are changing our valuation methodology to one based on SOTP, to arrive at a new MYR0.65 FV. Upgrade to BUY.

Media outlook to brighten post-election. We believe the media sector is poised for a 2H2013 recovery once the uncertainties and risks associated with the country’s general election are lifted, compelling advertisers to spend again. The 2H is typically a stronger period for advertising expenditure (adex) due to the many festivities such as the Hari Raya, Deepavali and Christmas, and not forgetting the mega sales carnivals.

Catcha Media well-positioned in online space. We are of the view that internet advertising could catalyse the media sector’s next wave of growth as the region is seeing a stream of upgrades on broadband infrastructure. Catcha Media is well positioned to tap the vast potential for online advertising in the region, especially in Malaysia where internet adoption is accelerating on the back of higher data adoption and the proliferation of smartphones and tablets.

Revisiting the company. Compared with its Australia Stock Exchange (ASX)-listed sister company, iProperty, Catcha Media’s performance has been most disappointing, prompting us to take a relook at the group. We believe it is a norm for an internet-based companies to bleed in the initial three to five years. So long as its revenue continues to grow and gearing stays low, the group could still generate meaningful earnings in the very near future.

Change in valuation methodology; upgrade to BUY. As we expect Catcha to continue incurring losses over the next two financial years, our earlier valuation based on PER would not be meaningful. As such, we are switching to a SOP valuation. Taking into account the market value of 29.2%-owned iCar, we derive a new FV of MYR0.65. Accordingly, we upgrade Catcha Media to a BUY.

Source: RHB