9M22 below expectations

9M22 results came in below expectations at just 48% of both our and consensus’ full-year estimates due to weaker-than-expected HCM-related sales. We cut FY22-24E earnings by 12-25% but expect better earnings ahead, to be anchored by improving DarwinBox-related sales and maiden contribution from Rider Gate. We lower our TP to MYR0.50, still pegged to 12.7x FY23E PER, which is at -1SD its 1-year average. Maintain BUY.

A weak showing in 3Q22

3Q22 net profit declined 75% YoY to MYR1.4m, in tandem with the reduction in revenue (-69% YoY) on the back of declining Human Capital Management (HCM) and employee collaboration businesses. The group’s earnings however increased 25% on a sequential basis, reflecting a gradual demand uptick in DarwinBox HCM-related solutions, as guided by the management earlier. EBITDA margin also improved sequentially to 21.0% (+4.5ppts) due to stable administrative costs. No dividend was declared for the quarter.

Dragged by decline in legacy businesses

The sharp YoY revenue decline on the 9M basis (-37% YoY) can be largely attributed to the weakening demand for Ramssol’s employee collaboration solutions, which coincides with the reopening of the economy and the resumption of physical workplace setting. Additionally, the marginal increase in DarwinBox business in 3Q22 was not enough to offset the decline in Oracle and other related HCM solutions.

Lowering earnings; gradual improvement ahead

We lower trim our FY22/23/24E earnings by 25/17/12% to account for the weaker-than-expected 3Q/9M22 revenue performance. We expect a sequentially stronger 4Q22 as DarwinBox-related sales pick up. Growth in FY23E could also be anchored by Rider Gate, its new motorcycle marketplace solution targeted to the large motorcycle distributors in Malaysia. Key risks are higher-than-expected development cost and weak spending among SMEs on the digitalisation journey of their operations.

Source: Maybank Research - 29 Nov 2022