HRnetGroup - DBS Research 2018-08-13: Higher Productive Headcount Driving Growth

HRNETGROUP LIMITED SGX:CHZ

HRnetGroup - Higher Productive Headcount Driving Growth

HRnetGroup’s revenue and earnings of S$108m (+10.8% y-o-y) and S$13m (+77.5% y-o-y) respectively were within expectations. Revenue growth was driven by both professional recruitment (+21.8% y-o-y, S$4.8m, particularly China, Hong Kong and Singapore), and flexible staffing (+7.7% to S$5.8m) in Singapore and Hong Kong.

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Gross margin increased from 34.9% to 36.9% due to better sales mix from professional recruitment (66.6%, +2.7ppts). Productive headcount for 2Q18 was highest in eight consecutive quarters at 75.5% as headcount tapered 3.6% y-o-y to 669 from last year.
Core operating profit growth was S$16.4m (+18.6% y-o-y). However, government grants were down to S$0.5m from S$0.9m in 2Q17.
Stripping out one-off IPO expense in 2Q17 amounting to S$2.7m, PBT of S$17.2m would have grown by 23% y-o-y.

The quarter saw recovery in Indonesia, Thailand and Hong Kong, led largely by more professional recruitment volumes with minimal change in recruitment rates. 2Q18 numbers are now on track to meet our estimates as 1H18 revenue of S$203.3m now makes up 49.5% of our S$411m full-year forecast, with earnings (S$24.2m) at 50.5% of our full-year forecast (S$47.2m).
Earnings growth outlook in 2H18 will be supported by new contribution from recent acquisitions in REForce Human Resources in Shanghai, JV with HRnet Rimbum in Indonesia and Career Personnel in Hong Kong.

No change to our earnings. Our Target Price, pegged to 15x (based on ex-cash multiple) FY19F (after rolling over earnings base from FY18F) EPS and net cash, is now S$1.01.

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2018-08-13

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