HRnetGroup - RHB Invest 2018-08-10: Strong PATMI Growth Continues In 2Q18

HRnetGroup - RHB Securities Research 2018-08-10: Strong Patmi Growth Continues In 2q18 HRNETGROUP LIMITED SGX:CHZ

HRnetGroup - Strong PATMI Growth Continues In 2q18

  • Maintain BUY and DCF-backed SGD1.18 Target Price, 36% upside.
  • HRnetgroup reported a strong 2Q18, with topline rising 10.8% y-o-y and PATMI surging 77.5% y-o-y to SGD13m. This was contributed by strong performances in North Asia and Singapore, coupled with a rise in GPM to 36.9%.
  • 1H18 PATMI formed 54% of our FY18F PATMI estimates. 
  • With net cash of SGD271m, we believe HRnetgroup is likely to make more acquisitions in the near future and focus on new markets, as well as building up its presence in North Asia.



HRnetgroup reported a strong 2Q18

  • HRnetgroup reported a strong 2Q18, with topline rising 10.8% y-o-y and PATMI surging 77.5% y-o-y to SGD13m. This was contributed by strong performances in North Asia and Singapore, coupled with a rise in GPM to 36.9% on increased contributions from the professional recruitment segment to 66.6% from 63.9%. This business has much higher gross margins of 99.6%.
  • Revenue/ per employee was up 15% y-o-y, followed by a 21.6% rise y-o-y for gross profits/employee. Productive sales employees have also increased to 505 from 469.



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We previously guided that we expect strong performances to come from Singapore and North Asia.

  • In 2Q18, professional recruitment topline grew by 21.8% y-o-y, mainly contributed by its performance in Singapore and North Asia. For flexible staffing, strong business momentum continued in Singapore and Hong Kong, with topline up 7.7% y-o-y.
  • With the REForce acquisition in China, we expect it to contribute positively to PATMI in 2H18. We are also expecting further positive growth momentum in North Asia to continue driving the company’s profitability.


Management is committed towards investing CNY100m in the CIIC Real Power Human Resource Fund,

  • ... which is intended to tap into private equity deal flows and energy of the human resources investment space in China – with potential for collaborations, co-investments and trade sales. 
  • The deal allows HRnetgroup to ride on the investment expertise of state-owned Shanghai Real Power Capital, as well as the reach and influence of state-owned China International Intellectech Corp, to seek out and evaluate deals that might otherwise be known only to domestic players. This provides HRnetgroup with more acquisition opportunities in China.


We believe HRnetgroup will likely make more acquisitions in the near future, 

  • ... and focus on new markets, while building up its presence in North Asia. We also expect a better FY18 ahead due to stronger growth in North Asia and Singapore across all segments, as well as the effect of the 88GLOW plan on PATMI – this is likely to take full effect in 2018.
  • In addition, management is likely to continue its share buyback scheme to reward productive sales employees and for further acquisition purposes. As a result, we maintain our BUY recommendation with an unchanged DCF-back Target Price of SGD1.18, 36% upside.
  • Key risks include fluctuations in general economic activity.





Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-08-10
SGX Stock Analyst Report BUY Maintain BUY 1.180 Same 1.180



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