HRnetGroup - RHB Invest 2020-08-13: Tough Times Continue; Stay NEUTRAL


HRnetGroup - Tough Times Continue; Stay NEUTRAL

  • Due to the COVID-19 pandemic, hiring across the globe has slowed down significantly. HRnetGroup (SGX:CHZ) has been impacted by this, reporting a lower 2Q20 PATMI of SGD20.99m (-31.9% y-o-y). GPM narrowed to 29.7% in 2Q20 on lower contributions from professional staffing services. As a result, we cut FY20-21F PATMI by 10 and 12%, which led to a lower Target Price.
  • We remain NEUTRAL on the stock, due to the lacklustre industry outlook.

Hiring in Singapore and Greater China expected to be weak

  • HRnetGroup's management highlighted that COVID-19 has greatly impacted regional economies – especially in Singapore and Greater China, which account for 91% of group gross profit.

2H20 will likely remain weak.

  • Management revealed that the uncertainty in the business environment impacted its 1H20 operations, as clients changed decisions on hiring and start-work dates of selected candidates. Companies are taking time to re-organise logistics, processes and the flow of human capital within their organisations. This may impact revenue recognition on cases where candidates have already signed the letter of appointment, but are waiting for the confirmation of their start-work dates.
  • Going forward, hiring is expected to continue declining – which will tone down HRnetGroup’s numbers. However, compared to its listed peers that have suffered losses, we believe it will be able to ride through these headwinds – as it has done so in the past.

FY20F dividend yield of c.4%.

  • HRnetGroup announced a DPS of 2.8 SG cents for FY19, in line with our forecasts and representing about 55.8% of its PATMI.
  • While HRnetGroup has a net cash balance sheet and strong cash flow generation, the challenging outlook and weaker results leads us to anticipate lower dividends in FY20 – although this should still represent a decent yield of 3.8%

Uncertainties and headwinds cloud outlook.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2020-08-13
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.52 DOWN 0.610