Lowering TP but maintain BUY

1H22 core earnings declined 48% vs. 1H21, coming in below our expectation on the back of weaker-than-expected revenue growth due to softening demand for digital communication tools amid the post-pandemic transition back to normalcy. We trim our FY22-24E earnings by 9-13%, but still expect a stronger performance in 2H as take up for DarwinBox’s HCM solutions is expected to gain traction among SMEs. Maintain BUY with lower MRYR0.60 TP, still pegged to 12.7x FY23E EPS (-1SD vs. 1YR mean).

1H22 undershot our estimates

2Q22 core earnings contracted 60% YoY on the back of lower revenues (- 16% YoY) and weaker margins as the quarter saw lower revenue mix from the HCM technology applications segment. This brought 1H22 earnings to MYR2.1m, which made up just 26% of our full-year forecast, with the variation coming mainly from lower-than-expected revenue growth and operating margins due to the change in revenue mix. No dividends were declared during the quarter, but net cash improved sequentially to MYR10.9m in 2Q22, from MYR6.0m in 1Q22.

In a transitory period

We understand that revenue from the HCM technology applications segment (Lark, Feet’s and Zoom) was lower during the quarter, most probably due to softening demand for digital communication tools as the resumption of physical settings gained traction as part of the workplace transition back to normalcy. Meanwhile, contributions from its new exclusive partnership with DarwinBox has yet to contribute meaningfully to the group’s revenue in 2Q22.

Trimming estimates; expect a stronger 2H

We trim our FY22-24E earnings by 9-13% as we take into account a lower revenue contribution from the HCM technology application segment. However, we still expect a stronger performance in the 2H from Ramssol as take-up for DarwinBox’s HCM solutions should gain traction among SMEs, in tandem with this segment’s strong underlying digitalisation trend. Elsewhere, Ramssol’s initiatives to grow its training business by leveraging on the Human Resource Development Corp’s (HRDC) fund could also provide additional revenue uplift for the group.

Source: Maybank Research - 24 Aug 2022