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HumanSoft | Booming Demand in Kuwait's Education Sector | KUW8

Overview

HumanSoft Holding Company is engaged, along with its subsidiaries, in establishing and managing private universities and colleges, providing computer education, language training, executive courses, and electronic commerce and media, since 1997. Humansoft has acquisition of interests in related business in Kuwait and abroad. The Company has four major business segments, which are as follows:

  • Training and career development programs: Primarily, New Horizons Computer learning centers that operate out of key locations in the Middle East viz. in Kuwait, Dubai, Qatar and Abu Dhabi. These centers provide training courses building up from beginner level to the acquisition of advanced certificates in the latest Microsoft, CISCO and Citrix technologies. Professional courses are also on offer such as Six Sigma, Project Management and Information Security.
  • English Training: Operates through Expression Institute for Private Training, in affiliation with Direct English Linguaphone Group. It incorporates a learning system, which is based on a cyclical pedagogical syllabus that focuses on instruction in conversational English and the comprehension.
  • Learning Solutions: TRACKLS focuses on delivering content-based programs and learning solutions for enterprises powered by the Internet, thereby empowering corporate clients and institutions to transform into learning organizations. It provides a wide array of learning solutions ranging from IT, Business, Desktop, and Language e-learning content and professional certifications and learning management systems.
  • Higher Education: Apart from AUM & ACM, Tawteen focuses on career development and job placement of GCC nationals in the private sector. Having conducted several projects in the UAE and Kuwait, where it has been able to train and place more than 2,500 newly graduated locals in the private sector, Tawteen now focuses on career Development and Placement of students at AUM and ACM by working closely with external organizations and employers.

Why Human Soft | Key Observations 

Higher Education is the Need of an Hour

Education sector carries a strong future demand for tertiary education, due to multiple factors like government support for higher education, growing youth population and skills-gap in the corporate sector. As an organization, HumanSoft’s earnings power, sustainability of cash flows and high operating margins are positive and remain key pillars.

The company’s strategic focus and taking advantage of the absence of other prominent education service provider in Kuwait (& in the GCC), the stock carries a promising outlook for investors, going forward.

Booming Demand in Kuwait's Education Sector

The government’s commitment to education as both a social good and a prerequisite for its economic diversification strategy has seen spending on the sector rise in recent years. Even with government coffers less flush with oil income, developing Kuwaitis’ knowledge and skills remains a top priority. Youth population in Kuwait between the age group of 15-19 years is set to grow at a CAGR of 3.2% over next five years. Moreover, high school graduates account for only 5.4% of the youth population as per our 2017 estimates[1], which should improve going forward. Kuwait continues to provide financial support to Kuwaiti students who wish to pursue university education. This should drive demand for tertiary education.

The private education sector is regulated by the Ministry of Education, which is currently developing the strategy to reform teaching methods including improving and upgrading the curriculum. The private school market is highly competitive and is characterised by the presence of several well-established players across the country. Additionally, Kuwait has potential to improve in line with GCC peers in Higher Education and Training, as per the World Economic Forum.

Higher Education Spending is Good for HumanSoft

Kuwait’s government continued to increase is budget allocation for education, as it reached 13.06% of total allocation in 2019, from 9.5% of its 2016 budget, but still below the GCC average of 15.6%. The regional average is influenced by the huge sums being committed by Saudi Arabia, at 17.5% of its 2019 budget. Qatar allocated 9.4% and Bahrain spent 8.8% [2].

Government education spending has grown rapidly in recent years, as the leadership has continued to emphasize the importance of education in creating sustainable employment for Kuwaitis and equipping them with the skills to compete in the global marketplace.

Subsidiaries and Associates

With 11 subsidiaries and 2 associates, HumanSoft has expanded its wings across the region. Out of 11 subsidiaries, 5 are in Kuwait where it has a strategic Direct interest of around 100% in 2 firms and 3 others with an Indirect interest of 99%. The last one subsidiary with 100% stake is based in the UAE. Out of other 6 subsidiaries, 5 are based with an Indirect interest of 100% in the UAE and the last one is in Qatar [3].

On associates’ part, 2 associates with a 40% stake lies in Qatar. 

Business Strategy

The company’s strategy is to derive almost all of its income from focusing on “Higher Education segment” with a CAGR of 9% for coming two years and with a gross profit margin of 77%+ [4]. Such increment is aided with further increase in blended fees (KWD/year) over the same period from American University of the Middle East (AUM) & American College of the Middle East (ACM). 

The upcoming auditoriums, exhibition center and amenities should attract a higher proportion of high school graduates to the AUM & ACM going forward.

Key Challenges

  • Shortage of skilled teachers
  • The enrolment rate in the higher education segment remains low, reflecting a mismatch between skills taught to graduates and requirements of the labour market
  • Setting up a school involves not only a high capital requirement, but also high running costs 

Although, the sector provides enormous opportunities, yet it does face multiple challenges too. Currently, the private sector participation is low but rising. The key concern is the “Quality of Education”, due to which many students opting to go overseas for higher education instead of enrolling in local educational institutions. Also, education sector is one of the capital intensive industries with a long turnaround, which acts as a barrier for many investors looking for a quick gains. Moreover, while new government policies are implemented to accelerate the private sector participation and help keep pace with increasing demand in the region, yet we cannot deny that these might take time to implement and hence there exists an execution risk.

Find out more about KMEFIC FTSE Kuwait Equity UCITS ETF (KUW8).

As of 10th July 2019, the KMEFIC FTSE Kuwait Equity UCITS ETF (KUW8) held 3.60% of its weight in HumanSoft Holdings. 

Read our KUW8 Whitepaper, "Funds & Falcons | Oportunites in an Emerging Kuwait" here

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