HRnetGroup - RHB Invest 2020-10-29: Economic Recovery Play; Maintain BUY


HRnetGroup - Economic Recovery Play; Maintain BUY

  • Maintain BUY with a Target Price of S$0.52, 8% upside and c.4% yield.
  • With global economies reopening, more flight routes reinstated over time, and positive test results on a potential vaccine, chances for an economic rebound seem credible in 2021. Hiring may likely bottom this year and rebound in 2H21. We think the majority of bad news relating to HRnetGroup (SGX:CHZ) has been priced in.

Negative news mostly priced in.

  • With COVID-19 effectively affecting HRnetGroup negatively, professional staffing, which yields the highest margins, dropped 27% y-o-y for 1H20 and resulted in lower gross margin. This is likely to continue till 1H21F but we think that most of the negative news and negative outlook has already been priced in and HRnetGroup Share Price has likely bottomed unless the situation continues to worsen globally.

3.8% dividend yield for FY20F.

  • HRnetGroup announced 2.8 cents dividend for FY19, in line with our forecasts and represents about 55.8% of its PATMI. With its net cash balance sheet and strong cash flow generation despite a tough outlook and poorer performance, we expect HRnetGroup's FY20F dividend yield of 3.8% – decent, albeit, lower.

Hiring correlated to GDP performance.

  • A country’s GDP growth is a key indicator on how it has performed economically. Singapore’s GDP growth fell in 2020 and is expected to be impacted in 1H21. We think that the world has now adjusted to COVID-19 and global economies should likely bottom by 1H21.
  • In addition, positive news of vaccine trials may potentially lead to an effective vaccine, which will be positive for a global economic rebound and lead to more jobs and further hiring.

Net cash represents 60% of market cap.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-10-29
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.520 SAME 0.520