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3 Takeaways From Innity Corporation
By: Peter Ng
Articles (81) Profile

It is hard to deny that corporations are becoming more innovative compared to the past and this is especially the case in marketing. As new ways of advertising are constantly explored, the variety of advertisement mediums are stretched beyond the traditional ones like the advertisements and banners we see on television buses and trains, to include digital platforms.

Considering the rapid growth in the global internet penetration rate that has jumped more than 7 folds in the last 14 years to around 40 percent, gone are the days when digital advertising was just a litmus test for corporations.

In addition, the added benefits such as cost efficiencies in digital advertising could even be the first stop for some corporations when they are planning for a marketing campaign.

Second To Google
When it comes to online advertising, advertising via search engines is likely to be the most common among other options of digital advertising.

In conjunction to the placement of search engine advertisements, the name, Google, would likely be the first someone would associate with. Indeed, the Google Adword network is the largest and perhaps the most renowned thanks to the Google search engine.

However, Google is not the only player that offers solutions for search engine advertisements. There are other notable players such as the Komli Media network and Innity Corporation’s Innity Network which we will look into.

Innity Corporation owns a digital media network under the name of Innity Network, which provides a suite of online marketing solutions, from a host of digital advertising solutions to solutions that allow real-time bidding, for advertisers and publishers.

The Innity Network has registered a total unique visitor traffic statistics that were second to the Google Ad Network in most Asian countries, making it one of the biggest internet advertisement networks in Asia.

Impressive Sales Growth; Inverted Profitability
In the past five years between FY09 and FY13, Innity Corp booked a 37.4 percent compounded annual growth rate in revenue.

The impressive growth in revenue is evident that corporations have learnt to embrace digital advertising despite a short history since its promninence. As such, networks providing these services have rode along the growth in digital advertising.

However, as we dive deeper, one will begin to notice that much of the surplus created from sales revenue were siphoned out into expenditure.

From a decent operating margin of 18.8 percent and 16.5 percent between FY13 and FY12 respectively, until eventually where net margin fell and appeared in the single digit territory of 5.7 percent in both years.

The indentation was attributed to other operating expenses or expenses that were not related to the firm’s core operating activities.

Furthermore, the company’s return on equity of 8.7 percent in FY13 pales in comparison to the current Malaysia equity risk premium and government bond yield.

The current Malaysia’s equity risk premium stands at around 7.6 percent as of January 2015 according to a data published by New York University, while the 10-year Malaysia government bond yield is 3.9 percent.

This amounts to 11.5 percent where under normal circumstances, investors should seek for a return that is equivalent or exceeds the percentage.

Collection Period Is A Concern
On the company’s balance sheet between FY12 and FY13, trade receivables which are sales made on credit grew 42 percent to RM20 million in FY13.

Next, the collection period which as the name suggests, denotes the amount of time in days which a company collects the purchases made on credit.

For Innity Corp, its collection period gained approximately 24 days to 157 days in FY13. The actual period of collection differs significantly from the company’s trade credit terms which range between 30 and 90 days.

Typically, cash is required to fulfill most obligations through out a company’s operations. Apart from taking a longer time period to collect cash payments made on sale, more importantly, a longer collection period could also have an implication on a company’s cash flow effiency.

In addition, as cash flow from operations has declined substantially between FY12 and FY13, mainly from the fulfillment of working capital obligations in trade payables, improvements in the company’s ability to collect payments from it sales will be crucial.

Outstanding Growth With Inefficiencies
While Innity Corporation is able to occupy a large market share in the digital advertising space that has directly translated into its outstanding sales performance, however, the company’s growing costs and a lax collection period have taken more than a nibble on its profits and cash flows respectively.

 

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This article is brought to you by Bursa Malaysia Berhad. The research in this article was conducted independently by Pioneers & Leaders (Publishers) Pte Ltd (“Pioneers & Leaders”) and the views and opinions expressed in this article are Pioneers & Leaders’ own and do not represent the views and opinions of Bursa Malaysia. Bursa Malaysia does not warrant or represent, expressly or impliedly as to the accuracy, completeness and currency of the information in this article. In no event shall Bursa Malaysia be liable to the reader or any other third party for any claim howsoever arising out of or in relation to this article.
Backed by a strong interest in investments, Peter's research spans across a range of industries, with his focus placed on companies listed on the SGX.

Please click here for more information about this author.


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