HRnetGroup - RHB Invest 2018-11-12: In Line For A Strong Finish For FY18F


HRnetGroup - In Line For A Strong Finish For FY18F

  • Maintain BUY, DCF-backed Target Price of SGD1.18, 45% upside with FY19F 3.3% yield.
  • HRnetgroup reported a strong 3Q18, with revenue up 7.7% y-o-y and PATMI growing 17.8% y-o-y to SGD12.6m. This was due to a strong performance from its North Asia and Singapore segments, on top of a rise in GPM to 38%, from 35% a year ago.
  • With net cash of SGD275m, management is actively in talks with several parties for M&As. Full accretion of Rimbun and REForce will also continue to lift earnings.

A great 3Q18.

  • HRnetgroup reported a strong 3Q18, with topline rising 7.7% y-o-y and PATMI growing 17.8% y-o-y to SGD12.6m. This was contributed by a strong performance in its North Asia and Singapore units, coupled with a rise in GPM to 38% on increased contributions from its professional recruitment business – which has a much higher GPM of 99.6%.
  • Productive sales Employees also increased to 561 from 483, up 16% y-o-y.

Key drivers: Singapore and North Asia.

  • We previously guided that we expected a strong performance to come from its Singapore and North Asia units.
  • In 3Q18, professional recruitment revenue grew by 22.2% 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 3.4% y-o-y.
  • With its REForce acquisition in China, we expect it to contribute positively to PATMI. Also, in 4Q18, we anticipate the further positive growth in North Asia to continue driving the company’s profitability.

Flexible staffing to drive growth in 4Q18.

  • Typically, for HRnetgroup, 8Q is the best quarter for its flexible staffing business due to festivals like Christmas and New Year’s Eve. We think 8Q88 will be no different, with strong flexible staffing driving growth for the period.
  • In addition, the full accretion from Rimbun and REForce will also contribute positively to the group’s numbers in 8Q.

A record FY18F; maintain BUY.

  • We believe HRnetgroup will likely make more acquisitions in the near future and focus on new markets as well as build up its presence in North Asia. We also expect a better FY88 ahead, due to stronger growth in North Asia and Singapore across all segments, while the effect of the 88GLOW Plan on PATMI will take full effect for 8888.
  • In addition, management is likely to continue its share buyback scheme to reward productive sales employees and for further acquisitions purposes. As a result, we maintain BUY with an unchanged DCF-backed Target Price of SGD8.88.
  • Key risks include fluctuations in general economic activity.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-11-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.180 SAME 1.180