HRnetgroup - RHB Invest 2018-01-09: Strong 4Q17 And Acquisition Spree Ahead

HRnetgroup - RHB Invest 2018-01-09: Strong 4Q17 And Acquisition Spree Ahead HRNETGROUP LIMITED CHZ.SI

HRnetgroup - Strong 4Q17 And Acquisition Spree Ahead

  • We expect HRnetgroup’s strong performance to continue in 4Q17, as events during Christmas and the New Year are likely to boost the number of temporary jobs available. 
  • With the first MoU announced on HRnet Rimbun and net cash of SGD280m, we expect more acquisitions to follow in 1Q18-2Q18. This is 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 and DCF-derived TP of SGD1.14 (39% upside).

Moving back into Indonesia. 

  • HRnetgroup has entered into a binding term sheet with PT Rimbun Job Agency (Rimbun Job Agency) for the proposed establishment of a new brand, HRnet Rimbun. The latter is to provide professional recruitment services in Jakarta, Indonesia, via a new JV that would acquire Rimbun Job Agency’s existing professional recruitment business. 
  • The consideration has not been finalised yet. We expect this acquisition to be completed by 1Q18.

A positive 4Q17 expected on strong contributions from flexible staffing in Singapore. 

  • HRnetgroup’s positive 3Q17 results largely reflect the strong growth from its flexible staffing business in Singapore. It was also due to the full contribution from the 88GLOW plan. 
  • We expect strong growth in flexible staffing to continue in 4Q17, due to major events like Christmas and the New Year. These would allow HRnetgroup to end FY17 with a bang.

Ready for acquisition spree with net cash of SGD280m. 

  • With a net cash hoard of SGD280m – coupled with SGD15-20m of free cash flows per year and low capex requirements – we believe the group 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. To this extent, several non-disclosure agreements (NDAs) have already been signed. 
  • We believe HRnetgroup is likely to target recruitment firms that specialise in specific sectors – this 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 1Q18-2Q18.

Management buyback a vote of confidence. 

  • HRnetgroup has been buying back its shares multiple times in Aug 2017, Sep 2017 and even recently in Dec 2017. We think this is a positive testament to the group’s strong fundamentals and its positive outlook.

Positive signs point towards a good 4Q17 and more incoming accretive acquisitions – maintain BUY. 

  • We believe HRnetgroup is likely to increase its acquisitions in the near future and focus on new markets it has yet to penetrate, eg Japan, China, Australia and Europe. We also expect a better 4Q17 on stronger growth in flexible staffing in Singapore. 
  • With a positive outlook ahead, we maintain our BUY call and SGD1.14 TP (39% upside). 
  • Key risks include increased competition and fluctuations in general economic activity.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2018-01-09
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.140 Same 1.140