Sunday, May 08, 2011

More On Asia Media (AMedia)

Interesting comments from the posting Regarding Asia Media (AMedia)

solomon said...
Did u buy for quick gain or fundamental?

If the company is convinced for profit growth, I think justifiable to accumulate on bear market.

My remisier has not recommend any stock because I want to be clear minded when I put my bet. In mike case, I would say mike has 50:50 chance to win, but the remisier sure win when u buy and sell.

Wish u luck, mike. Hold the stock and don't buy more. There could be more opportunity ahead.

lofan73 said...
oh yeah go ricky ..go ricky,u have a supporter here from steven.

bro,how do they get their revenue??

is it easy to collect fr the advertisement??..hve u ever thought of 'beli 1 commercial,free 5 commercials? or buy 2 free 20??..ini macam pening kepala la..bottom line macam mana mau cantik??..somemore do they hve strong cashj flow?

K C said...

“Where got such big fat frog jumping everywhere?” Amedia selling at 23 sen now but TP is RM3? Mike, you just can’t blame me for having the above feeling. Looking at the price chart, Amedia is about its lowest price now since listing. TA followers would have dump this stock as it has “broke through a resistance level”. No, I am not a follower of TA. I would have bought some at this level as it might be “cheap” now, but not until I have seen a few years of good past performance which shows that it is worth much more than 23 sen. However, there is no such information and I am not the one who simply believe in a future rosy growth story. Moolah has reservation about its business model, which I believe in too. Better not catch a falling knife and be a victim of pump and dump. Steven, there is no such thing as "sure win" in investment. Even there is convincing past records of good performance and a good story, I would buy some but would not put all my eggs in one basket. Dollar cost averaging is a fallacy. Its usefulness as an investment and risk management strategy has long been debunked (One can just goggle about it). It has more pitfalls and disadvantages. Only that it is still been propagated by brokers, unit trust agents, and also so called financial adviser (licensed ones with CFP), either for their personal interest, or they simply just do not know.

STEVEN said...

Friends, heard that it's quarter results will be out soon, possible this month. Should be impressive from from it's past reports & records. If the report is good, then it's worth putting more money into it I suppose. With a PERatio of 5.2 for 2011, 4.3 for 2012 & 3.5 for 2013, I presume it's worth picking more to hold. Your comments please.

My comments:

Steven:

Asia Media was listed on Jan 2011. and Asia Media's one and only one quarterly earnings announcement was made on Feb 2011 and that quarterly earnings was for the period ending Dec 2010. Which meant that earnings was pre listing earnings.

Here's the link to the earnings report: Quarterly rpt on consolidated results for the financial period ended 31/12/2010

I for one, would NOT take much consideration from this set of earnings. It's pre-listing earnings and many times these earnings doesn't mean much at all. And furthermore it's only one set of earnings. How could anyone logically conclude anything much from it? Do I dare say it's lousy because of one set of earnings? Or do I dare say it's best in the world based on this one set of earnings?

Yeah, the ability to pick out future earnings of course is very desirable. This separates the real winners than others. However, you do need some sort of evidence to prove that the company can perform as a listed company. Yes. the key word, the ability to perform as a listed company.
Many a times, many companies can perform wonderfully prior to listing and once listed, their performance seems to slide. Haven't we seen such incidents many times before?

Now back to Asia Media. Let's just look. If you open the pdf file attached to that quarterly earnings, look for page 9.

Quote: "The contribution of PBT from the current financial quarter under review to the year-to-date's PBT is lower due to the non-recurring of exceptional gain on negative goodwill of the Acquisition in the second quarter, amounted to approximately RM4.87million, which forms a major part of other operating income of the Group."

I would note 2 things from here.

1. The earnings was boosted by exceptional gain (gain from negative goodwill). It's a one time gain.
2. I would be worry for the fact that PBT is actually 'lower'.

That's about it.

I cannot draw much on the balance sheet cos the numbers is pre-listing numbers and they did not include the money that was raised from Asia Media's listing exercises and we won't know how much Asia Media has used.

And again that's about it.

Nothing more.

And so Amedia said it made 10.283 million and if you minus out the one time exceptional gain of 4.87 million, Amedia earnings is only around 5.413 million.

Now Amedia has 228 million shares. You can verify it with the screen shot below.


Which means that we are looking at an EPS of round 2.4 sen only.

So how much of a fair value do we want to place on such a stock based solely on PE?

Remember in the earlier posting Regarding Asia Media (AMedia) , RHB said the following: "

Applying a target FY11 PER of 6x, we arrive at an indicative fair value of RM0.29. Our target PER is at a 60% discount to our target CY11 PER for Media Prima of 16x, mainly to reflect its significantly smaller size, in terms of market capitalisation and revenue base."

RHB felt the PER ratio used should be 6x. ( Hahaha... some would argue why so low? Well, RHB's market leader, Media Prima, only trades at a PER of 16x)

Ok, I know RHB is using FY 11 earnings. Which should be correct because a stock should be worth based on its future prospects but let's take a step back. And first let's look at the current and then only the future. Is this acceptable?

If so, let's look at current.

Current eps is only 2.4 sen. (remember we had taken out the exceptional one time gain for our computation of eps)

If one used a PER of 6x, then the fair value based on an eps of 2.4 sen should be 2.4 x 6 = 14.4 sen only.

Ok.. stop staring and glaring. :P

Let's now use future earnings.

Ah... RHB forecast is 13.8 million for Amedia's fy 2011. Is this number acceptable or is too optimistic?

Think about it.

Here's what one can do. 13.8 divided by 4 would be 3.45. So RHB is suggesting that Amedia's earnings per quarter should be around 3.45 million.

Amedia's earnings in Feb said it earned some 2.17 million only. Which means to meet RHB's expected earnings of 13.8 million for fy 2011, Amedia's earnings this month should increase by some 1.28 million ( how i get this? 3.45 minus 2.17 = 1.28 ) or an increase (or growth) of 58%!!!

How?

To meet RHB's expectations, Amedia's earnings needs to increase by 58% when one compares it to its previous quarter.

Now I am not saying that this is not possible.

Why? The numbers are really, really, really very small!

Any company can easily have their earnings increase from one million to two million. Or from 2 million to 3 million. Yes it's possible.

But to keep it in perspective, the suggested numbers are saying that Amedia's growth should be explosive.

How? Is it possible?

I don't know. There's only one quarter of earnings. I, for one, cannot make any sensible remarks if such earnings expectations is possible or not.

So to protect and safeguard ourselves (from being too optimistic) perhaps it's best to use a lower set of numbers.

Say 12 million. Yes, let's use a lower earnings estimate of 12 million.

Is this acceptable?

Ok how about 3 set of numbers? Use 8, 10 and 12 million.

With a share base of 228 million, we are looking at eps of 3.5 sen (based on 8 million profit), 4.4 sen (based on 10 million profit) and 5.2 sen (based on 12 million profit).

RHB's uses a PER of 6x.

Which means we are looking at fair values of 21 sen (based on eps of 3.5 sen), 26.4 sen (based on eps of 4.4 sen) and 31 sen (based on eps of 5.2 sen).

So which set of numbers are you comfortable with?

Remember all these numbers are already based on expectations of higher growth from Amedia and some might argue that this might be a huge task because Amedia had already suggested that their PBT numbers were lower in their Feb quarterly earnings.

How?

Again... numbers are numbers. I can sit here and punch in all sort of numbers (like for example, why on earth is a PER of 6x only? Why so little? Why not 10x?) but in all honesty, I think it doesn't mean anything much because there's not enough financial data from Amedia itself. It's really way too early to say anything.

Me? If I am really interested, I would really study in great detail the sustainability of Amedia's business model. Take a bus ride on any of the Rapid bus in KL. Watch their tv or Amedia's tv. Is it impressive?

ps: I am actually amazed by the number of response on this ACE market stock. Why this one? Why the urge to choose this company which has yet to have any proven track record as a listed company?

10 comments:

snowball said...

My view on this Amedia is based on the two blog posts on this blog. So, I really don't know much about the company. But, just my 0.0002 cents.

The business model:

1) By targeting public transport i.e. rapid kl and stuff, no disrespect to people that take public transport, unlike other countries like HK and Sg, those that take public transport in Malaysia are those that could not afford a car. Is this people a desirable group of people to target for advertiser?

2) Are there any alternative means to reach these group of low-income people? I think there are plenty: those free tabloids. Based on revenue/readership of these paper versus more established ones like the star, they are generally much cheaper to advertise. Whether Amedia are competitive versus this free tabloids?

3) As an advertiser, what I care about is whether people look at the screen or not. During peak period, when people go to work, those that take public transport need to go earlier, will these passengers catch the opportunity to sleep rather than look at a TV screen? If they want to look at the TV screen, will their view be blocked by the people standing and etc and the message and sound of the advertisment could not be heard?

4) Long term risks: competition against smartphones and tablets. The smartphone penetration rate is very low. I think less than 10% of world market and is ramping up very quickly. In Singapore, which has one of the highest smartphone penetration in the world( I think more than 70%), people look at their Iphones, Ipads, Androids and stuff all the time when they take public transport, they do not look at the screen on those TV bus advertiser or MRT advertiser. So, when smartphone become cheaper (it will, just a matter of time), can Amedia compete against smartphones? Will people look at their screen? Do you want to use something you have control (smartphone) or watch a stupid screen that you do not have control?

As an investor or advertiser, I think I will think this sort of questions on their business.

Again, I do not know much about the company, just got to know this company via Moolah's blog posts. But, I think, this are the sort of question one should think about, since you all are buying all this potential, it is important to think about what if the potential is NOT realize?

Then again, this company, if they ramp up successfully, the operating leverage will be tremendous. How many of these high potential company manage to pull it off? What if other people come in or rapid decide to have their own division if they see Amedia so profitable?

kmleng459 said...

Looks like a Mobif in the making with the following themes:

- millions of PAT in the initial years of listing
- 'secret weapon' (a term once used by Mobif) that will propel the company to humongous profit growth
- tax-free MSC status will provide for opportunities for creating phantom revenue sources and suppressing costs

There are a number of red flags such as:

- unclear on who and how much are advertisers paying
- the captive market belongs to the bus companies. A conservative rental of RM500 per month for 3,000 buses will translate into a cost of RM18 million per year for Asia Media. That cost element is not refelected in Asia Media's P&L and off-balance sheet deferred payments have not been disclosed.
- depreciation of less than RM1million on total fixed assets (presumably LCD TVs) and intangible assets of RM20 million implies a depreciation policy of 20 years. Moving to a more realistic policy of 5 years will result in charge of RM3 million to the bottom line.
- total salary cost of RM700k per annum (excl director's remuneration) will barely support a headcount of 10. A team of 10 people generating a PAT of RM10 million sounds incredulous.
- Asia Media's website is geared towards promotion of the CEO and the company's shares. Potential advertisers and customers are secondary.
- Too many political and financial types in the Board is a recipe for financially-engineered bubble that will eventually burst.

Caveat Emptor. Averaging down is a risky proposition.

Moolah said...

snowball: very interesting points, esp the last one: "What if other people come in or rapid decide to have their own division if they see Amedia so profitable?"

Good point!

In the Edge article, Going For Listing: Asia Media keen on branching out, the last 3 passages:

According to Asia Media’s prospectus, the industry — which is still in its infancy — is expected to see y-o-y growth of around 30% from 2010 to 2014. However, given the newness of the sector, the group admits that there are risks going forward if it is unable to attract and maintain advertisers.

Asia Media is also highly dependent on public transport companies, hence a failure to maintain relationships will prove detrimental for the company going forward. While the group acknowledges that it currently has exclusive contracts with its present set of public transport companies, it warns that this might not always be the case.

“However, we have always maintained a good working relationship with the bus companies. The group is in the midst of developing value-added services for RapidKL buses to reward frequent commuters through the contributions of advertisers, such as vouchers, to encourage the use of public transport,” explains Asia Media.

Moolah said...

kmleng459: Great point on the depreciation issue.

quote: - depreciation of less than RM1million on total fixed assets (presumably LCD TVs) and intangible assets of RM20 million implies a depreciation policy of 20 years. Moving to a more realistic policy of 5 years will result in charge of RM3 million to the bottom line.

I would like to see how much Amedia accounts for their LCD TVs in the coming quarterly earnings this month.

dhanaletchumi said...

i take the bus quite often and i can tell you off hand that the advertising wont last long. Unless there is some crony in Rapid whose palms are being greased.

Firstly the Rapid buses are all so noisy that you can hardly hear a thing.

secondly the reception is so bloody lousy.

and most importantly the folks on buses could care less about the inaudible adverts

cheers
d

limko said...

No disrespect intended.

I have seen some advertisements being put up at toilets in Aeon shopping centres, so that you can read the advertisements carefully and slowly while you go about doing your business there.

Will this business model better than TV advertising on Rapid-KL?

snowball said...

Quote- "the industry — which is still in its infancy — is expected to see y-o-y growth of around 30% from 2010 to 2014."

30% industry growth for 5 yrs is growth on steroids (almost 4x). I do not hope the industry my company is in to grow at such a fast pace unless the company have some special skill-like patents, cost competitiveness that are very hard to be replaced. Such a fast growth will just attract competition.

Talking about bus advertising, I think Amedia is not the first one to do it. Last time when I take bus which is around 2003-2005, there is this company that places TV screen on this bus company called Triton/Triten (not sure how to spell), I am not sure whether the company still exist. But, if it is so profitable, that company would be the first one to put into all other buses.

Moolah said...

snowball: More on the bus advertising issue.

One issue that I thinks needs to be addressed is the business model itself. We know that the LCD TVs belongs to Amedia and from the initial quarterly earnings, it appears that Amedia is not deprecitating this LCD Tvs correctly. Personally, I feel these monitors should have a shelf life of less than 5 years.

And more importantly, the contract between Amedia and Rapid. Now I would assume that Amedia pays Rapid a fee to allow Amedia to mount their TVs onto their buses. Which means Amedia needs Rapid buses more than Rapid needs Amedia. Which means, the position or the long term sustainability of such a business model should be rather risky.

And as you have said "What if other people come in or rapid decide to have their own division if they see Amedia so profitable?"

snowball said...

Yup, the business model, in which they don't depreciate the LCD at a proper rate (I have not read any of their financials in detail yet, but as kmleng has pointed out), it is artificially inflating. the profits.

Plus, the business model, Rapid will probably squeeze them dry. They may not form a new division as Amedia do provide some value such as finding advertiser, but the margins and the ROA Amedia is hitting is way way way too high..60+% margins and 35+% ROA. This sort of numbers is crazy. If the numbers is real, then, surely, Rapid KL will squeeze them dry. To put things into perspective, the sort of numbers they are hitting is better than that of Apple, Google and Microsoft. Apple, Google and Microsoft are known for their amazing numbers, this Amedia is better than them.

As d has said, the reception of the TV is pretty bad too. In Singapore, the place I am studying right now, they are actually this sort of TV bus advertising, but, it never really took off in a big way, cause it is rather bad. You can't hear the things that is being advertise, just like d has said. Sometimes, you can't see the screen either. I am not sure how effective is this sort of advertising. I would rather have the good old bus outdoor advertising, like putting the advertisement outside the bus body than to have this sort of advertisement.

kmleng also mentioned an interesting point about the website. Yup, the website is very promotional. When a company places shareholder first, customer second, it is always good to avoid them or be a little bit wary. These sort of website is a turn off to me when I invest.

I just feel that, market has gone up so much that, we are buying questionable stuff. Now, anything analysts says good, ppl just jump in to buy..Perisai, DRB, Amedia..We have lost our scepticism that we have in abundance during 08 and 09. Now, a lot of ppl are acting like cheerleaders. No matter what you say, ppl will not listen.

Moolah said...

Quote: "Now, a lot of ppl are acting like cheerleaders. No matter what you say, ppl will not listen."

Now this statement is extremely true.

When the market is blazing hot.. more time not not, logical reasoning goes out of the window and it's really a waste of time talking fundamental reasoning when someone is clearly speculating/punting on the stock.