HRnetGroup - RHB Invest 2018-12-14: Extending Reach Across China


HRnetGroup - Extending Reach Across China

  • Maintain BUY, DCF-based Target Price of SGD1.18 offers 49.4% upside and 3.5% FY19F yield.
  • HRnetgroup reported a strong 3Q18, with topline rising 7.7% y-o-y and PATMI up 17.8% y-o-y to SGD12.6m, contributed by a strong performance from North Asia as well as Singapore, and 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.
  • In addition, the full accretion of Rimbun and REForce will continue to lift earnings going forward.

Stellar 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 due to a strong performance in its North Asia as well as Singapore segments, coupled with a rise in GPM to 38%, on the increased contributions from professional recruitment which carried 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 expect a strong performance to come from its Singapore and North Asia units. In 3Q18, professionally recruitment topline grew by 22.2% y-o-y, mainly contributed by its performance in Singapore and North Asia. For flexible staffing, the 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 in 4Q18, and expect a further positive growth momentum in North Asia to continue driving profitability.

Flexible staffing to drive growth in 4Q18.

  • Typically, 4Q is HRnetgroup’s best quarter for its flexible staffing business due to festivals like Christmas and New Year’s Eve. We think 4Q18 will likely be the same, with strong flexible staffing set to drive growth for the period.
  • In addition, the full accretion of Rimbun and REForce will also contribute positively to the group in 4Q.

Record FY18 ahead; maintain BUY.

  • We believe HRnetgroup will likely make more acquisitions in the near future and focus on new markets, as well as grow its presence in North Asia. We also expect a better FY18, due to stronger growth in North Asia and Singapore across all segments and the 88GLOW Plan impacting PATMI positively, ie full effect for 2018.
  • In addition, management is likely to continue its share buyback scheme to reward productive sales employees and to equip itself for further M&As.
  • Key risks include fluctuations in general economic activity.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-12-14
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