Company Overview: iCar Asia Limited is an Australia-based company, which is engaged in the development and operation of Internet-based automotive portals in South East Asia. The Company's segments include Malaysia, Indonesia, Thailand and Corporate. It offers a Response Management System (RMS). It brands include Carlist.my and LiveLifeDrive.com in Malaysia; Mobil123.com and Otospirit, in Indonesia, and One2car.com,Autospinn.com and Thaicar.com in Thailand. Carlist.my connects car buyers and sellers to a single platform, which encompasses car classifieds and content. Mobil123.com is an online automotive classifieds Website with over 200,000 listings. Mobil123.com allows both motor vehicle dealers and private sellers to list cars for sale. Autospinn.com is an automotive content Website. The Company's subsidiaries include iCar Asia Pte Ltd, iCar Asia Management Services Sdn Bhd, Netyield Sdn Bhd, iCar Asia Sdn Bhd, PT Mobil Satu Asia, DQBP Sdn Bhd, One2Car Co., Ltd and Perfect Scenery Ventures Limited.


ICQ Details

iCar Asia Limited (ASX: ICQ), an internet-based automotive portals’ group has witnessed a challenging period in FY17 and start of FY18. However, the group seems to be putting efforts towards a recovery path. With many strategic moves and other updates, ICQ has started performing well in many jurisdictions. Its used care business is also bringing decent results. 

Robust Growth Witnessed in Used Car Business: As per iCar Asia Limited (ASX: ICQ), robust momentum was witnessed in the used car business in the 1H 2018 period which ended as at June 2018. Some negative impacts were witnessed in New Car business because of General Elections in Malaysia. However, a favourable momentum was also witnessed in the company’s operational metrics. With respect to the used car business, revenues recorded the growth of 35% to A$3.1 million in 1H 2018. On the other hand, the revenues from the new car business fell 14% YoY to A$1.8 million. In the H1 2018, the company also witnessed a decline of 2% on the YoY basis to $10.7 million in the operating costs thanks to the disciplined approach towards administrative, employment as well as marketing activities and rescheduling in regard to the New Cars events. In addition, the company’s EBITDA (Earnings before interest, tax, depreciation and amortization) losses stood at $5.7 million which reflects the decline on the YoY basis of 12%. This decline in the EBITDA losses was witnessed on the back of the lesser costs as well as increased revenues. Hence, we presume that the company will continue to maintain its growth trajectory in years to come on the back of rise in demand of cars in the market.


1HFY18 Financial Metrics (Source: Company Reports)

Strong Momentum in the Malaysian Business: The management of iCar Asia stated that in September 2018, the company’s business activities in Malaysia have managed to generate positive cash flows as well as EBITDA. Also, the management stated that this momentum might also be witnessed moving forward on a quarterly basis. The Malaysian region ended the September 2018 quarter by 3.96 million audiences. The management stated that they had maintained their clear focus on improving the quality of the listing and this can be achieved by removing the listings which are of inferior quality. On the YoY basis, this policy of the company led to the 23% YoY growth with respect to the buyer leads. However, at the end of 1H 2018, the revenues from the Malaysian region recorded the growth of 4% YoY.


ICQ’s Malaysian Region Metrics (Source: Company Reports)

Dealer Accounts, Listings Grew in Thailand Region: In the September 2018 quarter, iCar Asia’s operations in the Thailand region witnessed favourable momentum in the dealer accounts as well as listings. With respect to the dealer accounts, the growth was 22% on the YoY basis while in regard to the listings the growth was 8% YoY. This favourable momentum was witnessed even though there has been a fall of 2% on the YoY basis in the audience. This fall was witnessed because of the optimization strategies with respect to digital marketing partners.

Let us now have a quick look at the Thailand operations in 1H 2018. At the end of 1H 2018, the company’s Thailand operations saw a growth of 88% and 4% on the YoY basis in the audience and leads, respectively. However, in the 1H 2018, the Thailand operations witnessed an increase of 6% YoY in the listings. Notably, the revenues from the Thailand operations of the company recorded the growth of 15% in the 1H 2018 on the YoY basis.


Key Metrics of ICQ’s Thailand Operations (Source: Company Reports)

Robust Momentum in Key Metrics Supported ICQ’s Indonesian Region: In the media release for ICQ’s Q3 2018, the company stated that strong momentum was witnessed in the audience, listings as well as leads. However, in the 1H 2018, strong growth momentum was witnessed in the audience as well as listings in the Indonesian region. On the YoY basis, the growth in the audience was 76% while in the listings it was 11%. However, robust momentum was also encountered in the leads which rose 40% on the YoY basis in 1H 2018 via superior quality of the traffic. As a result, in the Indonesian region, the revenues witnessed the rise of 48% on the YoY basis in 1H 2018 on the back of the revenues from the used cars as well as revenues from the new cars. In our view, the business model of this region is on the right track and capable to generate more profitability in future.   


Key Metrics of ICQ’s Indonesian Region (Source: Company Reports)

An Improvement in Key Ratios of iCar Asia: At the end of June 2018, the gross margin of iCar Asia stood at 99.6% which reflects an improvement on the YoY basis because, at the end of June 2017, gross margin was 98.2%. However, the net margin of the company has also improved on the YoY basis. At the end of June 2018, net margin was -134.4% while at the end of June 2017, it was -158.6%. Resultantly, the company also witnessed a marginal improvement in its return on equity or ROE. At the end of June 2018, ROE was -15.3% while in the same period of the previous year it was -15.6%.

Moreover, the company has managed to maintain a decent level of current ratio. At the end of June 2018, its current ratio stood at 3.49x, representing adequate liquidity to fulfill any shortcoming liability in near future.

Trend of Digitization to Increase Moving Forward: In the investor presentation for 1H 2018, iCar Asia stated that there is an expectation that the online platforms are expected to witness a strong uptrend moving forward. Also, in the upcoming years, the internet economy of Southeast Asia might also witness robust growth momentum.

 
Outlook for Digital Transformation (Source: Company Reports)

New Additions to Support Growth Prospects Moving Forward: In the release by iCar Asia which covers information related to 1H 2018, the management of the company reflected positive views in regard to the outlook. As per the management of the company, the additions of auctions as well as new cars to the present business might help the company in witnessing the growth momentum moving forward. As a result, the company would be in a position to reap the benefits of its strong position in regard to the automotive markets.

However, in the media release of iCar Asia covering the information related to the Q3 2018, the management reflected favourable views in regard to the September 2018 quarter results. After achieving strong performance in Q3 2018, as evidenced by the growth in the revenues as well as favourable momentum in the Malaysian operations, the company is all set to target another market. By the end of 2018, the company believes that it could achieve the breakeven in the cash flows as well as in EBITDA in the operations which are being carried out in Thailand region. Overall, the management stated that the company is on the right path and its business is witnessing robust growth and there has been strong audience growth.

Stock Recommendation and Outlook: We expect that the company will continue to witness growth momentum in years to come supported by growing consumer discretionary spending and increasing disposable income coupled with its phenomenal audience growth to drive the overall sale. On technical analysis front, on the daily chart of iCar Asia Limited, two technical indicators named Moving Average Convergence Divergence or MACD and Relative Strength Index or RSI have been used. For the purposes of the analysis, the default values have been taken into consideration. As per the observation, the MACD line has crossed the signal line and, after the crossover, it is moving in the upward direction thus, representing a bullish sign. Let us now look another technical indicator. The 14-day RSI has started to rebound from the oversold region which reflects that the bullish momentum is expected to be witnessed moving forward. This rebound from the oversold region represents the bullish sign. Considering the data till 1H 2018, the company’s key ratios (like net and gross margins) have also improved on the YoY basis providing the sense of optimism regarding the future performance of the company. Moreover, the company’s Malaysian operations have managed to achieve improved results in terms of cash flow as well as EBITDA in the September 2018 quarter. The management of the company has also given favourable outlook. However, the stock price of iCar Asia Limited has remained quite volatile. Given the backdrop of aforesaid growth catalysts and current trading scenario, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.135 per share (down 3.571 % on December 04, 2018 post a rise of 7.7% noted in last five trading days).
 

ICQ Daily Chart (Source: Thomson Reuters)

 
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