Post  the  SAYS  merger,  Catcha  Media  is  set  to  become  one  of  the region’s largest internet media players.  Although its share of losses  in iCar Asia  has  been a  drag on  profitability,  the  value  of  its stake  in  this company is much higher than its own market cap. Hence, we see value in  Catcha  Media,  both  in  its  operations  and  iCar  Asia  investment. Maintain BUY, with a revised SOP-derived FV of MYR1.10.

One of the region’s largest internet media companies.  Post  merger with  SAYS,  Catcha  Media  is  poised  to  become  one  of  the  region’s largest  internet  media  companies,  especially  as  the  former  has undergone a tough infancy stage and is now profitable. SAYS reported a net  profit  of  MYR3m  for  the  15  months ended  Dec  2012  and  MYR0.4m for the first six months  of 2013. The earnings contraction was attributed to  higher  operating  expenses  as  it  expands  its  business  regionally  to solidify  its  market  position.  Hence,  we  believe  this  merger  will  expedite Catcha Media’s  turnaround  as  SAYS  has  started  contributing  positively to Catcha Media’s bottomline from 4QFY13.

Market  capitalisation  mismatch.  Catcha Media’s 27.4%-owned  iCar Asia (ICQ AU, NR) performed well in 2013 and its market cap stands at AUD255.2m  (MYR748.7m).  This  translates  to  MYR205.1m,  or MYR1.52/share for Catcha Media’s portion, which is higher than its own market  cap.  This  shows  that  there  is  a  significant  market  value mismatch. It also means that investors in Catcha Media  essentially own a  stake  in  iCar  Asia  at  a  discount  while  owning  the former’s  current operations for “free”.

Risks  and  rewards.  Catcha  Media  is  still  a  young,  growing  dotcom company that is looking to capture a larger market share. We think that it will continue to report bottomline losses, but are of the view that its solid balance  sheet  will  be  able  to  help  it  weather  its  infancy  phase.  With SAYS onboard, Catcha Media may even be able to report profits sooner.  

BUY,  FV  MYR1.10.  Our  SOP  valuation  shows  that  Catcha  Media  is  an undervalued stock with a valuation disjoint. Our FV is derived from: i) 8x P/E for its content business, ii) its portion of iCar Asia’s market value, iii) no value at all for its ceasing e-commerce business, and iv) 8x P/E for its social  media  business.  We  further  input  a  steep  20%  discount  to  its valuations  to  arrive  at our  final  MYR1.10  FV  (from  MYR0.96).  Reiterate BUY.

Improving fundamentals

Becoming one of the region’s largest internet media companies. On 8 Oct 2013, Catcha  Media  completed  its  merger  with  SAYS,  subsequently  forming  a  new subsidiary  called  Rev  Media  Equity  Holdings  SB  (Rev  Asia).  Rev  Asia  is  the combined entity of Catcha Digital, Catcha Publishing and SAYS. This subsidiary has the  potential  to  become  one  of  South-East Asia’s largest digital  media  groups  with one of the region’s widest digital reach. It also has leading global  consumer  brands as its  clients.  This  success can  be  achieved  with  the potential synergy of: i)  Catcha Digital’s digital reach, ii)  the digital transformation of Catcha Publishing’s  leading media  brands,  and  iii)  leveraging  on  SAYS’s social media user network. Catcha Media  owns  70%  of  Rev  Asia,  which  will  be  the company’s main  earnings  driver moving forward. With Rev Asia onboard,  and noting the fact that SAYS is already a profitable  entity,  Catcha  Media’s profitability is expected to improve further. This larger  entity  now  has  the  potential  to  become  one  of  the  largest  internet  media groups in the region.

About  SAYS.  There  are  basically  two  platforms  within  SAYS.  The  first  one, SAYS.com  (says.com),  targets  advertisers  and  attracts  online  adex.  It  is  a  social news  network  where  users  find  trending  stories  on  the  web.  If  a  particular  piece  of news or story appears on SAYS.com, it gets re-shared across social media streams such  as  Facebook,  Twitter  and  Blogs,  among  others.  SAYS.com  is  currently  the fastest-growing  news  website.  The  second  one,  8Share.com  (8share.com),  is  a social rewards network where users can earn money by sharing branded campaigns on  their  social  media  profiles  such  as  Facebook,  Twitter,  and  Blogs.  As  at  4  March 2014,  we  learnt  that  there  are  634,000  registered  users  in  Malaysia,  Indonesia, Singapore  and  the  Philippines,  and  a  total  payout  of  MYR3.7m  has  been  paid  to 8Share  members  since  2010.  This  creates  a  scenario  whereby  the  more  online content  is  shared  through  SAYS.com’s platform,  the  larger  the  platform’s exposure will be and the higher the performance fee/revenue the company receives.

SAYS’ financial  performance.  As  mentioned  earlier,  SAYS  has  been  profitable even  before  it  merged  with  Catcha  Media.  Based  on  the  announcement  on  Bursa Malaysia, the former posted a net  profit of MYR3m in  the 15 months ended 31 Dec 2012  (+6.2%  y-o-y)  and  earnings  growth  of  24.5%  y-o-y  for  the  first  six  months  of 2013. In terms of revenue, SAYS also booked promising growth of 23.6% y-o-y in the 15 months ended FY12 and 10.8% y-o-y for the first six months of FY13. A positive topline  growth  for  a  digital  company  indicates  that  it  is  able  to  sustain  its  growth omentum. More importantly, SAYS has gone through an infancy stage and is now profitable. Currently, the company is looking to penetrate into countries that will allow it to grow further. Ultimately, this will pave the way for Catcha Media to become one of the largest media players in the region. 

More room for growth. Based on a study conducted by Mobilemoney.net during the merger  process,  we  discovered  that  there  were  166.9m  internet  users  in  Asean  in 2012.  Additionally,  Accenture  estimates  that  an  additional  194m  internet  users  will come online regionally in 2010-2020. With that in mind, we believe there is still plenty of  room for Catcha Media’s internet business to grow given its penetration rate potential SAYS starts contributing from 4QFY13. Catcha Media reported slightly wider-than-expected losses in FY13, mainly due to weaker contributions from its print and online media  segments,  continued  losses  from  its  e-commerce  business  arm  Haute Avenue,  as  well  as  its  share  of  losses  from  its  27.4%-owned  iCar  (ICQ  AU,  NR). Nonetheless,  there  was  a  bright  spot  in  its  4QFY13  results  –  Catcha  Media  has started recognising contribution from the social media division, upon completion of its merger  with  SAYS  in  October  2013.  We  believe  this  would  help  improve  its bottomline  and  expedite  its  turnaround.  Furthermore,  Catcha  Media  has  ceased  its loss-making e-commerce division in 1QFY14. We therefore expect Catcha Media to report healthier numbers in FY14. That said, we expect the company to remain in the red  as  iCar  may  continue  to be  loss-making. We keep  our  conservative  stance  and make no changes to our earnings forecasts at this juncture.

A valuable gem and proven business model

The hidden gem in Australia. As highlighted earlier, Catcha Media’s 27.4% stake in Australia-based iCar Asia is a hidden gem, given that the portion that it holds in the latter  is  valued  at  MYR205.1m,  or  MYR1.52/share.  This  is  73%  more  than  Catcha Media’s  current  share  price  and  indicates  how  much  the  company  is  being undervalued. Unfortunately, iCar Asia is still a loss-making company and is the main reason Catcha Media’s profitability is being  dragged  downwards.  Despite  these losses, however, iCar Asia’s share performance has been doing well, appreciating by 665% to AUD1.33 (from AUD0.20) as at 5 March 2013 since listing in Oct 2012. Such a phenomenon is normal for young dotcom companies despite not making profits in their  infant  stage.  This  was  the  same  route  travelled  by  the  likes  of  Twitter,  Google and  Yahoo  in  their  early  days.  As  a  gauge  for  future  profit  potential,  an  analysis  of traffic  growth  and  cash  burn  rate  on  dotcom  companies  will  provide  a  meaningful justification  for  its  high  valuation.  The  strong  traffic  growth  indicates  a  growing  user base  on  its  platform  and  the  potential  for  monetisation.  Hence,  a  strong  balance sheet is essential during the infancy stage. As such, we believe that, by merging with SAYS,  Catcha  Media  will  be  able  to  leverage  on  the  former’s  user  base  to  grow  its traffic numbers, which, in the long run, paves the way to profitability.

Business  model  is  proven.  iProperty  (IPP  AU,  NR)  and  Catcha  Media  share  the same founder but both companies’ share prices are moving in different directions. iProperty has been performing well on the Australian Stock Exchange (ASX) despite continuously  reporting  losses.  Its  market  share  and  revenue  are  growing  positively and consensus believes that the company will turn profitable in the near term. Here in Malaysia, we believe that Catcha Media is on the same positive track as iProperty’s, namely:  i)  building  strong  traffic  and  earnings  will  come  when  the  scale  is  built,  ii) disciplined capex to drive growth, and iii) not being overly geared. 

Valuation And Recommendation

Our valuation. We have been valuing Catcha Media using the SOP methodology as we  believe  that  valuing  the  company  based  on  earnings  may  not  be  meaningful  at this  juncture. We believe  investors  may  not  be  too  comfortable  with  a  price-to-sales (P/S) valuation either. Thus, with our SOP valuation, we break down Catcha Media’s three main business segments and value them individually, as illustrated below:

i)  Content  business:  This  segment  is principally Catcha Media’s print  and online  advertising  businesses,  which  are  highly  reliant  on  advertising expenditure  (adex),  for  which  we  expect  positive  growth  in  the  internet space.  Our  valuation  for  its  content  business  is  pegged  at  a  target  of  8x FY14F P/E, which is a 20% discount to the media industry’s average P/E of 
10x. 
ii)  Classified  ads:  iCar  Asia  has  been  heavily  traded  on  the  ASX  and  its market  value  has  grown  significantly  since  listing.  Its  market  cap  during  its IPO  was  AUD28.4m  (MYR89.0m),  which  has  now  grown  to  AUD255.2m (MYR748.7m)  as  at  5  March  2014.  The value of Catcha Media’s  27.4% stake will translate into MYR1.52/share. iCar Asia’s revenue and traffic have been  growing  positively  despite  the  company’s losses,  which  have  been narrowing.  
iii)  E-commerce: We do not impute any value in our SOP valuation as Catcha Media ceased its e-commerce business division in 1QFY14. 
iv)  Social Media:  As  this  is  a  new  business  arm  and  there are  no  meaningful comparable peers in the region, we conservatively peg its earnings to an 8x forward  P/E,  which  is  in  line  with  the  target  P/E  we  used  for  its  content business. 
v)  We impute a steep 20% discount to our final FV for Catcha Media, given its risk profile. Our FV is now MYR1.10 (see Figure 7).

Financial Exhibits

Financial Exhibits

SWOT Analysis

Catcha Media has a first-mover advantage in Malaysia’s online media advertising industry

Company Profile

Catcha  Media  is  involved  in  the  internet  advertising,  magazine  publication  and  social  media  businesses,  with  Microsoft  as  its  key partner.

Recommendation Chart

Source: RHB