HRnetGroup - RHB Invest 2021-03-03: Proxy To Economic Recovery; Keep BUY


HRnetGroup - Proxy To Economic Recovery; Keep BUY

  • 2020 was a tough year for HRnetGroup due to COVID-19, as hiring decelerated – as evidenced by its decreased number of job placements, which led to a decline in revenue from professional staffing.
  • However, with many countries expected to see an economic recovery this year, hiring should rebound – and this should benefit the company. As such, we lift HRnetGroup's FY21 earnings forecast by 15%.
  • Maintain BUY on HRnetGroup, new target price of S$0.72 from S$0.52, 22% upside with ~4% FY21F yield.

Negative news mostly priced in.

  • COVID-19 negatively impacted HRnetGroup (SGX:CHZ)’s business, and its professional staffing business – which has the highest margins – fell by 27% y-o-y in 1H20. This, in turn, crimped overall gross profit margin.
  • The downtrend continued into 2H20, but we think that, at present, most of the negative outlook has already been priced in. We expect HRnetGroup's earnings to rebound in 1H21.

Decent dividend yield of ~4% for FY21F.

  • HRnetGroup announced a dividend of S$0.025 per share for FY20, which is in line with our forecast. See HRnetGroup's Dividend History.
  • With its net cash balance sheet, strong cash flow generation and brighter outlook bringing about a more upbeat expectation of its numbers this year, we expect HRnetGroup's FY21 dividends to be higher than that of FY20.

Hiring is correlated to GDP performance.

  • A country’s GDP growth is a key indicator of its economic performance. Global GDP growth shrank in 2020, and this trend may continue into 1H21. However, we believe the world has now adjusted to the rigours of the pandemic and GDP growth may bottom by 1H21.
  • Also, vaccine trials – potentially leading to more effective vaccines being marketed – are positive for an economic recovery, which should translated to bigger demand for jobs and hiring.

60% of HRnetGroup's market cap is net cash.

  • HRnetGroup has been an efficiently run company. In comparison, a number of its global peers have been operating at a loss during the COVID-19 pandemic. HRnetGroup is still generating positive cash flow, and had S$333m in net cash as of FY20 – which is equivalent to 60% of its market cap. It is also trading at a modest 11.7x FY21F P/E, while offering a decent yield of ~4%.
  • We believe HRnetGroup is a good proxy to the regional economic recovery, and maintain a BUY call. Our target price is pegged to 15x FY21F P/E, as we raise HRnetGroup's FY21 earnings forecast by 15% on higher contributions from and growth in its high-margin professional recruitment segment.
  • See HRnetGroup Share Price; HRnetGroup Target Price; HRnetGroup Analyst Reports; HRnetGroup Dividend History; HRnetGroup Announcements; HRnetGroup Latest News.
  • Key downside risks to our outlook include an economic recession dampening the demand for recruitment services.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-03-03
SGX Stock Analyst Report BUY MAINTAIN BUY 0.720 UP 0.520