1. Company Overview:
Background
Tamkeen Human Resources Company is a Saudi closed joint stock company established in 2018. It focuses on providing workforce solutions to corporate and individual clients. The company operates in the rapidly growing human resources sector, which is driven by the Kingdom's economic diversification initiatives and the increasing demand for skilled labor. Tamkeen's services span various sectors, including healthcare, retail, technology, and construction.
Business Segments
Tamkeen's core business segments include:
- Corporate Segment: This segment offers manpower services to various industries, including restaurants, food services, operations, maintenance, contracting, healthcare, retail, technology, and information systems. The company's specialized teams provide tailored solutions to meet each sector's needs, ensuring seamless and efficient workforce deployment.
- Individual Segment: This segment is divided into two sub-segments:
- Contractual Services: This sub-segment focuses on long-term contracts with individual clients, providing services such as housekeepers, chefs, and private drivers. The company prides itself on the reliability and proficiency of its workforce, ensuring high standards of service delivery.
- Hourly Services: This sub-segment offers flexible, on-demand services, primarily focusing on housemaids and cleaners. This model provides unparalleled flexibility, allowing clients to avail themselves of professional services as per their specific requirements and schedules.
Subsidiaries
Tamkeen owns three subsidiaries:
- Open Technologies for Communications and Information Technology Company provides specialized human resources services in information technology and programming.
- Elaf Specialist Contracting Company: Offers general cleaning services for buildings and is expected to commence operations in the third quarter of 2024.
- Eraf Medical Company: Provides medical cadres (nurses and nursing assistants) for home healthcare services and is expected to start operations in the third quarter of 2024.
2. Market Position and Competitive Landscape：
Market Position
Tamkeen has a significant market share in the Saudi human resources services sector. As of 2022, it had a 4.0% share of the market, making it one of the industry's key players. The company's strategic focus on both corporate and individual segments has allowed it to diversify its revenue streams and mitigate risks associated with market fluctuations.
Competitive Landscape
The Saudi human resources market is highly competitive, with several key players scrambling for market share. The top competitors include:
- Saudi Manpower Solution Co. (SMASCO) has a 24.1% market share and operates in various sectors, including construction and healthcare.
- Maharah Human Resource Company: This company holds a 15.3% market share and is known for its adaptability and expansion into the B2C domestic sector.
- Al Mawarid Manpower: Holds an 8.8% market share and offers various services across various industries.
Tamkeen's competitive advantages include its strong brand reputation, extensive client base, and strategic partnerships with overseas recruitment agencies. The company's focus on technological innovation and customer service excellence further strengthens its market position.
3. Valuation
Balance Sheet Analysis
Total assets increased from 4.505 billion SAR at the end of 2023 to 4.834 billion SAR (+7.3%), mainly driven by current assets (+7.8%). Cash and bank balances reached 2.332 billion SAR (accounting for 48%), indicating ample liquidity. However, this may imply low capital utilization efficiency. Trade accounts receivable increased by 12% (from 757 million SAR to 848 million SAR). The collection cycle and bad debt risk need to be monitored.
Total liabilities increased from 1.488 billion SAR to 1.982 billion SAR (+33%), but the proportion of non-current liabilities decreased (from 25.1% to 19.5%), indicating an improved debt maturity structure.
Total equity decreased from 3.017 billion SAR to 2.852 billion SAR (-5.5%), mainly due to a reduction in undistributed profits (from 863 million SAR to 189 million SAR), which may reflect dividends or investment expenditures.
Income Statement Analysis
Revenue increased by 24% year-on-year (to 1.454 billion SAR), and net profit increased by 17% (to 18.51 million SAR), indicating effective business expansion. The gross profit margin was 21.1% (compared to 22.9% in the same period of 2023), with a slight decline possibly due to cost growth (+27%) outpacing revenue growth.
Selling expenses decreased by 55% year-on-year (from 1,666,043 SAR to 755,089 SAR), optimizing expense control. However, administrative expenses increased by 25% (from 9.64 million SAR to 12.08 million SAR). The rigidity of administrative costs needs to be watched.
The net profit margin was 12.7% (compared to 13.5% in the same period of 2023), mainly due to an increase in Zakat (a form of tax) and operating costs. Overall, Tamkeen's profitability has greatly improved.
Cash Flow Analysis
Operating Activities Cash Flow
In Q1 2024, the net cash flow from operating activities was SAR 24,797,294, a 19.4% decrease from SAR 30,780,904 in Q1 2023. This decline was primarily due to increased Zakat payments amounting to SAR 7,089,974. Zakat is an obligatory almsgiving in Islam, typically calculated as 2.5% of an individual's wealth and payable annually.
Financing Activities Cash Flow
The company made lease liability repayments of SAR 2,516,040 and distributed dividends amounting to SAR 35,000,000. These activities indicate a focus on optimizing capital structure and enhancing shareholder returns.
Key Financial Ratios
Relative Valuation
Tamkeen's P/E ratio is slightly lower than that of its peers, indicating that it is slightly undervalued compared to SMASCO and ALMAWARID. A lower P/E ratio suggests that Tamkeen's stock is less expensive than its earnings, which could make it attractive to value investors.
Tamkeen's P/B ratio is lower than both SMASCO and ALMAWARID, indicating that it trades at a lower premium than its book value. This suggests that Tamkeen's stock is relatively undervalued compared to its peers, which could be an indication of a potential upside.
Tamkeen's EV/OIBDA ratio is slightly lower than SMASCO's but higher than ALMAWARID's. This ratio compares a company's enterprise value to its operating income, providing a measure of its valuation relative to its operational performance. Tamkeen's EV/OIBDA ratio is in line with its peers, suggesting that it is fairly valued in this context.
Based on the relative valuation ratios, Tamkeen Human Resources Company appears to be undervalued relative to its peers and the industry.
4. Risk Factors
Operational Risks
- Low Profit Margin in Individual Segment: The company faces challenges maintaining profitability in the individual segment due to strong price competition and pricing restrictions imposed by the Ministry of Human Resources and Social Development (MHRSD).
- Manpower Retention: The company's relatively low retention rate for its manpower resources could impact its profitability and reputation.
- Absence and Absenteeism: The company faces risks related to manpower abscondence and absenteeism, which could lead to financial losses and operational disruptions.
Regulatory Risks
- Dynamic Regulatory Environment: The company operates in a rapidly changing regulatory environment, with new laws and regulations being introduced frequently. Compliance with these regulations could increase operational costs and impact profitability.
- Localization Requirements: The company must comply with Localization requirements, which mandate a certain percentage of Saudi nationals in its workforce. Non-compliance could result in penalties and restrictions on its operations.
Market Risks
- Economic Conditions: The company's business is sensitive to general economic conditions, and a downturn in the economy could lead to a decrease in demand for its services.
- Competition: The human resources market is highly competitive, and the company faces significant competition from both local and international competitors.
5. Conclusion
The company boasts significant strengths, including a strong cash position with cash reserves of 2.332 billion SAR (48% of total assets), an asset - light business model with non - current assets accounting for only 16% and a focus on human resource services, and a leading ROA of 3.8% compared to industry peers. It also benefits from the policy dividends of Saudi Arabia's "Vision 2030," which is driving employment market growth. The company's dividend payout of 35 million SAR and net profit in 2024 of only 18.5 million SAR, with the dividend payout accounting for 189% of net profit, raises concerns about its sustainability and may affect its ability to reinvest. Additionally, trade accounts receivable, which make up 58% of revenue, pose a risk of increased bad debts during economic downturns. In the short - term (6 - 12 months), it is recommended to reduce holdings as the stock price has already reflected optimistic expectations and the high valuation lacks fundamental support. In the long - term (3 - 5 years), a neutral view is held. If the company can improve asset turnover, such as cash utilization efficiency, and maintain a revenue growth rate of over 15%, the valuation is expected to be repaired. Potential catalysts include the implementation of Saudi labor reform policies, merger and acquisition integration opportunities, and a reduction in the Zakat tax rate.
Disclaimer:
Sahm is subject to the supervision and control of the CMA, pursuant to its license no. 22251-25 issued by CMA.
The Information presented above is for information purposes only, which shall not be intended as and does not constitute an offer to sell or solicitation for an offer to buy any securities or financial instrument or any advice or recommendation with respect to such securities or other financial instruments or investments. When making a decision about your investments, you should seek the advice of a professional financial adviser and carefully consider whether such investments are suitable for you in light of your own experience, financial position and investment objectives. The firm and its analysts do not have any material interests or conflicts of interest in any companies mentioned in this report.
Performance data provided is accurate and sourced from reliable platforms, including Argaam, Tamkeen Human Resources Company Prospectus.
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