CHM’s MYR1.4m 1Q13 core net loss widened its cumulative net loss to MYR4.3m. Thus, we revise downwards our FY13 earnings forecast, but we  think  its  outlook  should  turn  brighter in  FY14  post merger.  We  feel that  CHM  is  still  undervalued,  as  the  market  value  of  its  ICQ  associate has already exceeded the group’s  current  share  price.  Maintain  BUY, with FV revised upward to MYR0.96 (from MYR0.92).  
 
- Core  net  loss  widens.  CHM’s 1H13 core net loss has widened  to MYR4.3m  (+81.1%  y-o-y),  after  stripping  off  the  MYR1.7m  exceptional gains from the sale of Catcha Digital Asia. While its publishing and online media businesses fared commendably, these were not enough to offset the investment cost incurred by its e-commerce division, as it sought to capture market share. Hence, we have increased our FY13 core net loss forecast for the group to MYR5.1m (from -MYR3.0m).   

- Expecting  better  FY14.  We  think  CHM’s  FY14F’s  earnings  should improve  after  the  merger  with  online  social  media  platform  Says.com  is completed.  That  said,  the  intensifying  competition  calls  forth  a  more prudent  on  the  stock. We expect  CHM’s  FY14F  bottomline to  remain  in the red, as it would have to incur higher costs to secure a larger market share.  

- Local  operations  are  effectively  free.  CHM’s valuation  is  supported mainly by its 29.2% stake in iCar Asia Ltd (ICQ AU, NR) which accounts for 78% of its SOP valuation versus the 22% from its existing operations. At  current  share  price,  investors  are  effectively  getting  its  existing  operations for free with the market also undervaluing the assets of ICQ.     Risks. Low barriers to entry for new players and CHM’s high cash burn rate are its key investment risks.  

- Maintain  BUY,  FV  revised.  Although CHM’s earnings still do  not  look promising at this juncture, we think it is moving on the right track and its numbers  should  improve  in  FY14  with  contributions  from  Says.com. Apart from that, investors can actually own a 29.2% stake in ICQ (worth MYR0.75) by investing in CHM which has deep value. Maintain BUY with SOP FV revised to MYR0.96 (from MYR0.92).   

Source: RHB