HRnetGroup - RHB Invest 2019-05-13: Weak SG Numbers Drag Down Core Profit


HRnetGroup - Weak SG Numbers Drag Down Core Profit

  • Maintain BUY, new SGD0.94 Target Price from SGD1.06, 22% upside plus 3% FY19F yield.
  • Gross profit contributions from HRNETGROUP LIMITED (SGX:CHZ)’s Singapore operation dropped 11.6% y-o-y on a slowdown in hiring after the unicorn hiring spree ended.
  • As we expect the Singapore unit to remain weak in subsequent quarters, we adjust FY19-20F core PATMI by -6%/-5% which results in a lower Target Price. That said, it has net cash of SGD304m in its balance sheet – for which management plans to make yield-accretive acquisitions.

Investment profits aid bottomline.

  • HRNETGROUP LIMITED (SGX:CHZ)'s 4Q18 topline dropped 2.8% y-o-y while PATMI rose by 16.9% to SGD20.2m, mainly due to a one-off investment gain of SGD4.7m. Without these one-offs, core PATMI would have declined y-o-y, mainly due to the weakness in its Singapore and Taiwan units.

Looking at Vietnam for acquisitions.

  • Management is in negotiations on a potential M&A, likely in Vietnam, with a company size similar of that of REForce which it acquired previously. The company is profitable and we think that it will likely be earnings-accretive (just like REForce).

Becoming a strategic shareholder of Bamboos Health Care Holdings (Bamboo).

  • HRnetGroup invested in a 7.85% stake in Bamboo, with the aim of being a strategic shareholder and forming a partnership to further expand and develop its recruitment business in the healthcare sector. We believe it is possible it could grow its stake further, as long as deal is yield-accretive and strengthens its partnership even more.

2Q19 should still be weak for Singapore unit.

  • Due to the ongoing trade war issues, management said some companies are holding off on hiring while waiting for the trade talks to settle.
  • In the meantime, HRnetGroup has noticed weaker numbers from its Singapore operation this quarter. Premised on this, we trim FY19-20 PATMI estimates by 6%/5%, which results in a lower DCF-backed Target Price of SGD0.94.
  • With SGD304m om net cash, a > 3% dividend yield and potential yield-accretive acquisitions, we maintain BUY.
  • Key downside risks: Economic slowdown, defaults on payments by customers.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-05-13
SGX Stock Analyst Report BUY MAINTAIN BUY 0.94 DOWN 1.060