HRnetgroup - RHB Invest 2017-12-19: The Beginning Of The Acquisition Spree

HRnetgroup - RHB Invest 2017-12-19: The Beginning Of The Acquisition Spree HRNETGROUP LIMITED CHZ.SI

HRnetgroup - The Beginning Of The Acquisition Spree

  • We expect HRnetgroup’s strong performance to continue in 4Q17, as events during Christmas and the New Year would boost the number of temporary jobs available. 
  • With the first MoU announced on HRnet Rimbun and SGD280m of net cash, we expect more acquisitions to follow in 1Q- 2Q18 as management has budgeted SGD200m for acquisitions in FY18, which would likely boost PATMI significantly. 
  • In addition, there would also be less one-off costs in FY18. 
  • Maintain BUY with an unchanged DCF- derived TP of SGD1.14 (39% upside).

Moving back into Indonesia. 

  • HRnetgroup announced that it has entered into a binding term sheet with Rimbun Job Agency for the proposed establishment of a new brand – HRnet Rimbun – providing professional recruitment services in Jakarta, Indonesia. 
  • It will incorporate a new JV to acquire the existing professional recruitment business of Rimbun Job Agency (which commenced operations in 2007) for a consideration – this has not yet been finalised. The shareholders of Rimbun Job Agency have undertaken to remain employees of the JV company for at least three years. 
  • We expect this acquisition to be completed by 1Q18.

Strong contributions from flexible staffing in Singapore. 

  • HRnetgroup’s positive 3Q17 results largely reflected strong growth from its flexible staffing business in Singapore, as well as full contributions from the 88GLOW plan. We expect strong growth in flexible staffing to continue going into 4Q17, due to major events like Christmas and the New Year.

Ready for acquisition spree with net cash of SGD280m. 

  • With a 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) already 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 its existing profile. 
  • Management has already started with Rimbun Job Agency and we think that there would be larger sized acquisitions to come, especially in 1Q-2Q18. Assuming a budgeted SGD200m for acquisitions at an average P/E of 10x, HRnetgroup could potentially add another SGD20m (+50%) to its NPAT.

Positive signs point to a good 4Q17 and more incoming accretive acquisitions – Maintain BUY. 

  • We believe HRnetgroup would likely increase its acquisitions in the near future and focus on new markets which it has yet to penetrate like Japan, China, Australia and even Europe. We also expect a better 4Q17 ahead due to stronger growth in flexible staffing in Singapore. 
  • With a positive outlook ahead, we maintain our BUY call with an unchanged TP of SGD1.14. 
  • Key risks include increased competition and fluctuations in the general economic activity.

Singapore Strategy & Top Picks 2018 - RHB Invest 2017-12-19: There Is Still Potential To Generate Alpha
HRnetGroup is one of the 2018 Top Stock Picks by RHB Invest.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-12-19
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.140 Same 1.140