HRnetgroup - RHB Invest 2018-02-26: A Great 2018 Lies Ahead

HRnetgroup - RHB Invest 2018-02-26: A Great 2018 Lies Ahead HRNETGROUP LIMITED CHZ.SI

HRnetgroup - A Great 2018 Lies Ahead

  • HRnetgroup reported a strong 4Q17, with revenue breaking the SGD100m mark, rising 9.5% y-o-y to SGD101.7m, and PATMI up 22.4% y-o-y to SGD12.2m. This was due to strong flexible and professional staffing, especially in 4Q17. 
  • Going forward, the group continues to anticipate strong organic growth, as well as a turnaround in its Hong Kong operations. 
  • With the absence of IPO expenses and the continuation of the wage credit scheme (WCS), coupled with more potential acquisitions ahead, we maintain BUY on HRnetgroup with an unchanged DCF-backed Target Price of SGD1.14 (44% upside).

Strong contributions from flexible staffing in Singapore. 

  • HRnetgroup’s positive 4Q17 results largely reflected strong growth at its flexible staffing business in Singapore, as well as full contributions from the 88GLOW scheme.
  • We do expect the strong demand to carry on into 1Q18 due to the Lunar New Year, which saw a surge in demand for its short-term workers.

Strong organic growth ahead and turnaround in Hong Kong operations.

  • Management has guided for stronger performance from its Hong Kong operations, as they have turned around and returned to profitability (from being loss-making in 1H17). Business activities across the region, especially in Singapore, have also been robust.

Interim dividend a possibility – SGD0.023 dividend declared. 

  • SGD0.023 of dividend has been declared for FY17, representing 55% of the PATMI and in accordance with HRnetgroup’s dividend policy of 50% of NPAT. 
  • We do think that there is a possibility of interim dividends going forward, as well as a higher payout ratio, due to the low capex and strong balance sheet of the group.

Ready for acquisition spree with net cash of SGD280m. 

  • With a net cash hoard of SGD290m, 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 nondisclosure agreements (NDAs) already signed. 
  • We believe it would likely target recruitment firms that specialise in a specific sector, which would further add an edge and niche to their existing profile. We think that there may be more, largersized acquisitions to come, especially in 2Q18 and 3Q18.

A great FY18 lies ahead, with possibly more incoming accretive acquisitions – maintain BUY. 

  • We believe HRnetgroup would likely make more acquisitions in the near future and focus on new markets that it is not yet entrenched in, like Japan, China, Australia and even Europe. We also expect a better FY18 ahead due to stronger growth in Singapore across all segments, amid the absence of IPO expenses. 
  • With a positive outlook ahead, we maintain our BUY call with an unchanged Target Price of SGD1.14.
  • Key risks include increased competition and fluctuations in general economic activity

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-26
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.140 Same 1.140