HRnet Group - RHB Invest 2017-11-10: The Start Of The Acquisition Spree?

HRnetgroup - RHB Invest 2017-11-10: The Start Of The Acquisition Spree? HRNETGROUP LIMITED CHZ.SI

HRnetgroup - The Start Of The Acquisition Spree?

  • We expect HRnetgroup’s new JV to be accretive to earnings, also providing synergies and allowing them to tap into Indonesia’s pool of jobseekers and employers. This is a new market, on top of their existing 10 Asian cities. 
  • We believe this could also signal to the market that they are starting their acquisition spree, with SGD280m net cash available that could further fuel their NPAT growth without any dilution. 
  • With an expected better 2H17 ahead, we maintain our BUY call and DCF-backed TP of SGD1.14 (31% upside).

Incorporation of a new JV. 

  • HRnetgroup has announced that it has entered into a binding term sheet with PT Rimbun Job Agency (Rimbun Job) for the proposed establishment of a new brand – HRnet Rimbun – to provide professional recruitment services in Jakarta, Indonesia. 
  • They will incorporate a new JV, HRnet Rimbun, which will acquire Rimbun Job’s existing professional recruitment business, which started operations in 2007. The consideration has not yet been finalised. The shareholders of Rimbun Job have undertaken to remain employees of the JV company for at least three years.

Adding a new market – increasing their pool of job seekers and employers. 

  • The addition of HRnet Rimbun would add Indonesia to HRnetgroup’s existing presence in 10 Asian cities. More importantly, the increase to its existing pool of job seekers and employers would increase synergies, as it allows access to the Indonesia market for any cross-border job placements.

Ready for acquisition spree with net cash of SGD280m? 

  • With the net cash hoard of SGD280m, coupled with SGD15-20m of free cash flow a year and low capex requirements, we believe the company is well-positioned to go on an acquisition spree. 
  • Management has expressed interest in growing inorganically through acquisitions, especially in other parts of the world, with several non- disclosure agreements (NDAs) signed. 
  • We believe it would likely target recruitment firms that are specialised in a specific sector, which would further add an edge and niche to their existing profile. The acquisitions could potentially occur as early as 1Q18, in our view. 
  • Assuming a budgeted SGD200m for acquisitions at an average P/E of 10x, HRnetgroup could potentially add another SGD20m (+50%) to its NPAT, which is significant.

A signal of what is to come – Maintain BUY. 

  • We think that HRnetgroup would likely make more acquisitions in the near future, with a likely focus on new markets in which they are not yet entrenched, like Japan, China, Australia and even Europe. It would also focus on recruitment firms with a specific niche or focus on a particular sector to enhance its portfolio. 
  • We also expect a better 2H17 as compared to 1H17, due to the full impact from the decrease in its minority interest to 6.4% (from 18+%). 
  • Maintain BUY and DCF TP of SGD1.14 (WACC: 8.5%, TG: 1%).

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-10
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.140 Same 1.140