1Q24 above, driven by Malaysia and Thailand HCM business
Ramssol Berhad’s 1Q24 core net profit of RM4.2m (+98.8% yoy) was above expectations, at 54.8% of CGS’s Y24F estimate and 46.9% of Bloomberg consensuses.
CGS International (CGS), in a Company Note today (Apr 25), said the beat was a result of: 1) stronger sales from the group’s human capital management (HCM) business in Malaysia and Thailand, and 2) recognition of higher profit margin projects during the quarter.
Licence distribution business to provide earnings stability
Ramssol has secured licence distributorship rights for HCM software (e.g. Disprz, Laiye), and now distributes software licences to existing clients and other resellers.
CGS expects the distributorship business to provide incremental earnings, on top of the group’s existing HCM software implantation business, which is largely project-based. They believe PeopleTech (i.e. Ramssol’s core HCM business) will continue to be the largest earnings contributor during our FY24-26F forecast period, with equal revenue contribution from implementation and licence distribution. While we expect operating profit margins for license distribution to be lower at c.20% (vs. c.40% for implementation), this move will provide some stability to the group’s historically irregular earnings.
RiderGate earnings contribution to begin in FY25F
The RiderGate platform was soft launched in Feb 24, with c.260 motorcycle dealers onboarded to the platform since. Based on our discussions with management, the used bike platform is currently only open to motorcycle dealers, and a full launch to the public can be expected in 2H24F or FY25F.
CGS expects the platform to operate on a zero-fee basis for now, with incremental earnings from FY25F onwards.
Reiterate Hold, with a higher TP of RM0.48
CGS revised their FY24-25F earnings estimates upwards by 3.8-27.2% on incremental earnings contribution from the software licence distribution business and introduce their FY26F estimates.
CGS raised their TP to RM0.48 (from RM0.40), based on a GGMvaluation methodology employing FY26F ROE of 12.6%, required return of 10.6% and long-term growth rate of 6.0%.
CGS reiterates Hold as they believe that the potential incremental earnings from licence distributions and RiderGate have been fairly priced in.
Key upside/downside risks include: 1) stronger-/weaker-than-expected ability to secure HCM projects, 2) better-/weaker-than-expected sales of HCM software licences, and 3) stronger-/weaker-than-expected growth in RiderGate transactions.
