HRnetgroup - RHB Invest 2018-05-10: More Record Quarters To Follow

HRnetgroup - RHB Invest 2018-05-10: More Record Quarters To Follow HRNETGROUP LIMITED SGX: CHZ

HRnetgroup - More Record Quarters To Follow

  • HRnetgroup reported a record 1Q18, with revenue surging above the SGD100m mark to SGD107.0m (+12.3% y-o-y). This was due to strong growth in professional and flexible staffing in North Asia and Singapore.
  • PATMI was up 46% y-o-y to SGD16.3m, with partial contribution from the 88GLOW Plan.
  • Going forward, the group continues to anticipate strong organic growth and more record quarters ahead, especially in Singapore and North Asia.
  • Maintain BUY on HRnetgroup with unchanged DCF-derived Target Price of SGD1.14, offering 46% upside.

Strong contributions from professional recruitment in North Asia, particularly Hong Kong and China.

  • The group delivered on its promise during its listing, to expand its business units in North Asia as shown in the latest results. Gross profit in North Asia was up by SGD2.1m, making up 40% of its total gross profit in 1Q18, as compared to 38% in 1Q17. 
  • Average value per permanent placement went up by approximately 5.6% as well.

Flexible staffing continues to outperform.

  • The business environment in Singapore remained a stronghold for the group in 1Q18. The topline grew by 12.8% or SGD9.5m, and gross profit grew by 15.1% or SGD1.7m on the back of stronger volume and higher value per contractor employee.

Interim dividend and share buybacks are highly probably.

  • HRnetgroup’s dividend policy is to pay out 50% of NPAT. We think that there is a possibility of interim dividends going forward, in order to reward shareholders. 
  • The stock is still trading below its IPO price and is substantially undervalued compared to international peers. As such, we think that management will likely use some of the group’s cash hoard to buy back shares for future M&As.

War chest of SGD292.1m.

  • With a huge cash pile of SGD292.1m and zero debt coupled with strong free cash flows each year and low capex requirements, we believe the group is well positioned to go on an acquisition spree. It also has the aptitude to leverage up in the event it finds a sizeable target for M&A. 
  • Management has expressed interest in growing inorganically since listing, and we understand that the group is currently in negotiations with a few targeted companies. We believe it would likely target recruitment firms in the region where it plans to expand, especially in North Asia. 
  • We think these acquisitions will likely happen in 3Q18 and 4Q18.

Strong 2018 expected, with likelihood of more accretive acquisitions – maintain BUY.

  • We believe HRnetgroup would likely make more acquisitions in the near future and focus on new markets, as well as building up its presence in North Asia. 
  • We are also expecting a strong performance for the rest of 2018 due to solid growth in North Asia and Singapore across all segments, including the full impact of the 88GLOW Plan on PATMI, and the absence of IPO expenses. 
  • We expect more record quarters ahead and maintain our BUY call with an unchanged DCF-derived Target Price of SGD1.14.
  • Key risks include fluctuations in general economic activity.

Jarick Seet RHB Invest | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-10
SGX Stock Analyst Report BUY Maintain BUY 1.140 Same 1.140