Initiate with BUY and MYR0.66 TP

We initiate coverage on Ramssol Group with a BUY rating and TP of MYR0.66, pegged to 12.7x FY23E EPS (-1SD vs. 1YR mean). Through its expanded breadth of offerings, Ramssol is poised to benefit from the structural shift towards digitalisation of human capital management (HCM). Its recent IPO exercise also provides a war chest to undertake business expansion into new markets and broaden its product proposition for a wider range of clients. With projected 3-year earnings CAGR of 15%, the stock is trading on a PEG of 0.7x, a discount vs. peer average of 1.5x.

Extensive experience in providing HCM solutions

Ramssol’s competitive advantage lies in its wide suite of HCM solutions,being a certified reseller for various software vendors, including Oracle, Sage, and DarwinBox. Combined with experienced management, the group has managed to more than double its market share between FY17 to FY21 within its operating markets. We understand Ramssol’s exclusive partnership to resell DarwinBox’s HCM solutions in Malaysia, a strong alternative to existing vendors, should also put it in a solid position to tap into the digitisation of SMEs.

Pandemic-led growth in collaboration solutions

The recent pandemic has also boosted demand for employee collaboration and remote working solutions, an industry Ramssol has diversified into, through its Feet’s and Lark offerings. We expect revenue mix from this segment to sustain at ~30% in the coming years as the adoption of hybrid working arrangements would still necessitate demand for an end-to-end employee collaboration platform.

Projecting 3-year earnings CAGR of 15%

We project a 3-year FY21-24E earnings CAGR of 15%, following an earnings dip of 9% in FY21. This is on the back of growing market share through penetration into the SME segment and new markets within SEA, as well as expansion into the training segment to leverage on its expertise to upskill the general workforce. We expect EBITDA margin to gradually recover to 19-24% in FY22-24E, from 17% in FY21, underpinned by economies of scale and improvement in its cost structure. Key risks are rising competition, volatile cost elements, and strong/complete re- shift back to pre-pandemic practice of physical interactions.

Source: Maybank Research - 6 Jul 2022