Analyst Rates HUMAN “Outperform” at TP of ฿12.5, Expecting 2021-22 Earnings Growth of 36%

KGI Securities (Thailand) has given an “Outperform” rating on Humanica Public Company Limited (HUMAN) with a target price of ฿12.50/share as flagship software to drive earnings growth of 26%-36% in 2021-2022.

 

As the world enters the digital transformation era, powerful, efficient, and capable software at a reasonable cost and suitable to a firm’s needs are necessary to digitize a company’s processes. HUMAN’s own developed award-winning HR software, Humatrix, fits this bill. As the developer of Asia’s leading HR software and being in the early stage of APACs HR market, KGI believes HUMAN will enjoy the upcoming growth stage with estimated earnings growth of 12% -36% over 2020-2022. 

 

HUMAN is a leading end-to-end business solution provider in Thailand, especially in the human resource (HR) industry (~80% of total revenue) with its own developed award-winning system named “Humatrix”. Its other business segments include implementing enterprise resource planning (ERP) systems (SAP B1 and Oracle Netsuite) and providing outsource services for financing & accounting, which account for about 20% of total revenue.

 

KGI stated there is plenty of room for growth as Thailand’s HR is in an early stage. International Data Corporation (IDC) forecasts human capital spending to grow from US$16bn in 2019 to US$24bn in 2027 (8.4% CAGR) on the back of digital transformation, which will require well-equipped software to digitize the flow of an organization’s data. As Thailand’s HR market is still in the early stages compared to globally and coupled with cloud adoption being in the nascent stage, KGI expects Thailand’s enterprise software spending to possibly outpace the global pace.

 

Flagship software to drive earnings growth of 26%-36% in 2021-2022

Even though HR solutions account for ~80% of HUMANs total revenue, its current clients account for only 1.6% of Thailand’s large enterprises and current employees processed by HUMAN account for only 2.6% of Thailand’s workforce under SSO. KGI forecasts HUMAN to achieve solid top line growth of 22-25% in 2021-2022 (vs 19% in 2020F and 5-year historical average of 24%) propelled by its flagship software Humatrix. Coupled with its favorable cost structure that provides economy of scale, KGI estimates HUMAN to achieve appealing earnings growth of 26% in 2021F and 36% in 2022F.

 

Given the fabulous forecast earnings growth for HUMAN at 26% in 2021F and 36% in 2022F, outpacing estimated global growth at 12% and 9%, KGI assigned a premium PER at 41.0x (+1.0 S.D global historical average), which puts HUMAN’s end-2021 target price at Bt12.50. With the i) robust industry outlook during Thailand’s early stage for the HR market, ii) In-house world-class HR system, iii) reliable track record with well-known clients (15% of Fortune 500 companies and 30% of companies listed in SET), and iv) 39% upside to a target price, KGI initiated coverage on HUMAN with a rating of Outperform.

 

However, there are risks in competition from international companies, copyright violation, disruption in information and technology systems, reliance on key management staff.