Thailand Tech Services: A Promising Future for BBIK, BE8, HUMAN, and NETBAY

Broker: Maybank Securities (Thailand) PCL

Date: November 5, 2024

Overview of Thailand’s Tech Service Sector

Maybank Securities (Thailand) PCL presents a positive outlook on Thailand’s tech-service sector, anticipating a core profit growth of 21% for FY25 compared to a 5% decline in FY24. The recovery in demand for tech services in 3Q24, driven by improving economic conditions and increased government capital expenditure, is expected to benefit key players like BBIK, BE8, HUMAN, and NETBAY. Here, we delve into the performance and prospects of these companies in detail.

Bluebik Group (BBIK): Leading the Charge

Strong Performance in 3Q24

BBIK is poised to be the strongest performer in 3Q24, with a forecasted core profit of THB79 million, marking a 4% YoY increase and a staggering 75% QoQ growth. This growth is attributed to significant project wins between June and September 2024, reversing the project delays experienced in the first five months of the year. The company is expected to achieve a record-high quarterly core profit of THB92 million in 4Q24, reflecting a 16% YoY and 17% QoQ growth.

Revenue and Profit Drivers

BBIK’s strong performance is underpinned by a projected revenue of THB385 million in 3Q24, up by 15% YoY and 14% QoQ. The company’s backlog reached a record-high of THB905 million by the end of 2Q24, driven by resumed project wins. The revenue growth is further supported by a THB22 million share of profit from associates and JVs, reflecting an impressive 144% YoY and 108% QoQ increase.

Future Prospects: Virtual Banking and AI Adoption

BBIK remains Maybank’s top pick due to its robust profit growth projections for 2H24 and FY25. The company’s DCF-based target price is maintained at THB46.0, implying a FY25 P/E of 25x, which is below Accenture’s P/E of 28x. BBIK aims for a 20-30% annual revenue growth over the next 3-5 years, driven by investments in virtual banking, AI adoption, and increased digital transformation.

Virtual Banking as a Growth Catalyst

With the Bank of Thailand planning to issue three virtual banking licenses by mid-2025, BBIK stands to benefit significantly. The virtual banks are expected to invest THB3.0 billion to THB5.7 billion from mid-2025 to mid-2026, creating substantial demand for tech services. BBIK, with its expertise in product design, mobile application development, and project management, could capture 6-11% revenue growth from these virtual banking projects in FY25.

Beryl 8 Plus (BE8): Poised for a Turnaround

3Q24 Performance and Upgraded Rating

BE8 is expected to report a 3Q24 core profit of THB37 million, reflecting a 50% YoY decline but an 8% QoQ increase. Despite a 9% YoY revenue growth, the core profit drop is due to a 5.5%-pt decline in gross margin and a 1.8%-pt increase in SG&A expenses. The slight QoQ revenue growth is supported by project wins from both public and private sectors. Given the potential benefits from rising government capex in FY25, Maybank upgrades BE8’s rating to BUY from HOLD, with a target price of THB20.5, offering a 24% potential return.

Revenue and Profit Projections

After a 41% core profit decline in FY24, BE8 is forecasted to achieve a 71% core profit growth in FY25, driven by a 17% revenue growth and operating leverage. The company’s focus on government projects, including cyber security, CRM platforms, call centers, and workflow systems, is expected to contribute 9% to the revenue growth in FY25.

Competitive Position and Valuation

BE8’s FY25 P/E of 17x is the lowest among tech-service companies, making it an attractive investment. The company’s PEG ratio (FY24E P/E divided by FY24-26E EPS CAGR) of 0.6x is also the lowest in the sector. Potential re-rating catalysts include strong core profit growth in 4Q24 and FY25.

Netbay (NETBAY): Navigating Challenges

Impact of Vietnam Floods

NETBAY is expected to report a 3Q24 core profit of THB52 million, representing a 20% YoY increase but a 6% QoQ decline. The YoY revenue growth is supported by increased import-export volume in Thailand and revenue from the Smart Zoo project. However, the QoQ revenue drop is attributed to the floods and landslides in Vietnam, which impacted land transport from China to Thailand, causing a temporary dip in import volume.

Financial Projections and Valuation

Despite the short-term challenges, NETBAY’s FY24-26E dividend yields of 5-6% and attractive valuation make it a compelling investment. The company is trading at a 1-year-forward P/E of 18x, significantly below its 5-year average of 29x. Maybank reiterates its BUY rating with a target price of THB20.5, reflecting a FY25E P/E of 23x, or 1 SD below the 5-year mean.

Revenue and Profit Growth

NETBAY is projected to achieve core profit growth of 15% in FY24, a decline of 14% in FY25 due to the National Single Window (NSW) fee impact, and an 8% growth in FY26. The company is expected to manage the NSW fee impact by passing through 50% of the cost increase to its customers.

Humanica (HUMAN): Facing Margin Pressures

3Q24 Performance and Challenges

HUMAN is forecasted to report a 3Q24 core profit of THB76 million, reflecting an 8% YoY and 5% QoQ decline. Despite a 4% YoY revenue growth, the profit drop is due to a 6%-pt decline in gross margin and higher effective tax rates following the expiration of the BoI tax privilege in Thailand. The gross margin decline is attributed to software-related expenses in Indonesia, as additional work for live projects is recognized as opex.

Revised Financial Projections

Maybank has cut HUMAN’s FY24-26E core profit forecasts by 6%, factoring in lower revenue and gross margin assumptions. The company’s DCF-based target price is revised to THB12.7 from THB14.2, reflecting an 8.0% WACC and 3.0% terminal growth. HUMAN’s 1-year-forward P/E of 25x is 1.5 SD lower than its 5-year mean of 34x, presenting an attractive investment opportunity.

Future Outlook

HUMAN is expected to achieve core profit growth of 9.4% in FY24, 13.4% in FY25, and 11.4% in FY26. The company’s focus on expanding its service offerings and managing operational costs will be crucial in driving future growth.

Conclusion

Thailand’s tech-service sector shows promising growth prospects, with key players BBIK, BE8, HUMAN, and NETBAY poised to benefit from improving economic conditions and rising government expenditure. Investors should consider these companies for their strong growth potential, attractive valuations, and strategic initiatives aimed at capturing new market opportunities.