HRNETGROUP LIMITED (SGX:CHZ)
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
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Lee Cai Ling
RHB Invest
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https://www.rhbinvest.com.sg/
2019-05-13
SGX Stock
Analyst Report
0.94
DOWN
1.060
