HRNETGROUP LIMITED (SGX:CHZ)
HRnetGroup Limited - Diversification Amid Economic Uncertainty
- HRnetGroup's 1Q19 core earnings decline was a result of cautious hiring and exit of startups in Singapore, partially offset by stronger performance from North Asia.
- We expect new overseas offices and greater penetration into public sector/ healthcare jobs to drive potential 3Q19F earnings recovery.
- Maintain ADD on lower EPS and Target Price; supported by 7.4x ex-cash CY20F P/E.
Employment survey suggests stable outlook in Singapore
- In a recent Manpower Group survey of over 59k employers globally, Singapore recorded 3Q19 net employment outlook of +12% (relatively stable y-o-y and q-o-q), ranking 14th out of the 44 countries. Among the seven sectors in Singapore, public admin & education has the strongest hiring intentions at 22% (5%-pt q-o-q and 6%-pt y-o-y improvement), followed by services (+18%) and transportation & utilities (+10%).
Overseas presence as the new growth engine
- Cautious hiring in Singapore led to 1Q19 gross profit declining S$2.4m (-11.6% y-o-y), though partially mitigated by higher professional recruitment in North Asia (+S$1.3m).
- While HRNETGROUP LIMITED (SGX:CHZ) continues to face softer demand from some multinational clients in China, it is actively pursuing new domestic customers, which could contribute more meaningfully from 3Q19F.
- We are also positive on its new overseas offices which have started to gain traction e.g. REForce, Career Personnel in Hong Kong, RecruitFirst in Shanghai and HK.
Expect stronger pick-up from 3Q19F
- HRnetGroup posted 1Q19 topline decline in both professional recruitment (-1.5% y-o-y) and flexible staffing (-4.1% y-o-y). We expect flexible staffing to remain under pressure in 2Q19F due to the exit of some start-ups in Singapore; recovery in professional recruitment could be more visible from 3Q19F as HRnetGroup secures more public sector jobs in Singapore.
- 1Q19 headline PATMI of S$19.3m (+18.5% y-o-y) was boosted by S$5.6m Fair Value gain on financial assets, which could see a reversal in 2Q19F. There will also be zero government subsidies in 2Q19F (1Q19: S$4.5m, 2Q18: S$0.5m).
Increasing defensive angle to hiring business
- In May 2019, HRnetGroup bought a 7.85% stake of Bamboos Healthcare Holdings (2293 HK, Not rated), a fast-growing healthcare staffing solutions provider for clients like hospitals and social service organisations, with a portfolio of c.20k healthcare professionals in HK.
- While healthcare life science sector accounted for c.10% of HRnetGroup’s revenue in FY17-18, Bamboos is not an existing customer and we see potential for further collaboration.
Maintain ADD, supported by strong net cash and 3-4% yield
- We cut our Target Price of S$1.01, still pegged to 18x CY20F P/E.
- Downside risks to our call are global economic slowdown and poor overseas execution.
- Earnings-accretive M&As could re-rate the stock.
NGOH Yi Sin
CGS-CIMB Research
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https://research.itradecimb.com/
2019-06-13
SGX Stock
Analyst Report
1.01
DOWN
1.030
