Saramin (143240 KS)

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SaraminHR (143240 KS - US$273 million) runs the largest online job board in South Korea. It matches job seekers with employers through its job advertisements, CV database and algorithmic matching functionality.

The majority of Saramin’s revenues come from job advertisements. Two other sources of revenue are its headhunter segment and its talent dispatch segment. But due to their low margins, they don’t contribute materially to the bottom line.

Saramin was started in 2005 and is now part of Korean tech conglomerate Daou Group. Over time, Saramin has taken market share from incumbent JobKorea and is now the market leader.

Since 2018, the business has been run by a professional management team led by Kim Yong-Hwan. Saramin’s capital allocation isn’t perfect, with a meagre 20% pay-out ratio, occasional high-priced acquisitions, and Treasury shares not being cancelled. But the business seems well-run, with tight cost control and continuous innovation.

You could argue that there are so-called “platform network effects” for online job boards such as Saramin’s. Job seekers are attracted by the platform with the largest number of job advertisements. And employers are attracted to the platform with the largest pool of potential applicants.

At the same time, JobKorea’s scale almost matches that of Saramin. The feature set seems to be quite similar as well. The website engagement for the two platforms is almost identical. For now, they seem to co-exist in a friendly oligopoly.

Saramin’s revenue growth has decelerated over the past year due to the weak Korean economy. The number of job openings has started to go down since mid-2022. Korea’s COVID-19 stimulus payments have been phased out, and the global consumer electronics boom is over. Higher interest rates are also making companies cautious in their recruitment efforts.

But the current economic malaise isn’t going to last forever. While there’s nothing on the horizon that tells me that the bottom will be in soon, I do believe that a new cycle will emerge at some point.

On the positive side, Saramin is highly cash flow generative and has 30% operating margins. It also has a net cash position representing 10% of the market cap. So in my view, the company will not have any problems weathering the current downturn.

Saramin’s valuation multiples are now 9.7x P/E and 6.5x EV/EBIT on trailing numbers. On forward-looking numbers, I believe we’ll get closer to 8-9x P/E.

Those numbers are out of whack with the global peer group, which tends to trade closer to 17x P/E. Saramin itself has historically traded at a median forward P/E of 14x.

Are there any hidden risks? Not that I’ve been able to identify. Most listed entities in the Daou Group have actually performed well. While the payout ratio is low, that’s not unheard of in the tech industry. Very little dilution from stock-based compensation. And Saramin announced a new share buyback program just a few months ago.

When it comes to risks, the major risk is the economic cycle. But there was also a lawsuit in 2018 where Saramin was found to have crawled CV data from JobKorea. Finally, the liquidity is a bit weak at just US$0.5 million worth of shares traded each day.

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For those who don’t have trading access to Korean stocks, consider setting up an account with Boom Securities in Hong Kong or Monex in Japan/Australia. I personally have an account with Boom Securities in Hong Kong, so I can confirm that they accept non-resident customers.