HRnetGroup - RHB Invest 2021-05-05: Proxy To Economic Recovery


HRnetGroup - Proxy To Economic Recovery

  • Proxy to economic recovery;
  • PATMI and revenue likely to rebound in FY21F;
  • Net cash with decent dividend yield.

HRnetGroup - Company Profile

  • HRnetGroup (SGX:CHZ) is the largest Asia-based recruitment agency in Asia-Pacific (ex-Japan), compared to other key players with a presence in the region. The company operates 11 brands in 10 Asian growth cities – Singapore (where it is headquartered), Kuala Lumpur, Bangkok, Hong Kong, Taipei, Guangzhou, Shanghai, Beijing, Tokyo and Seoul.
  • Currently, HRnetGroup provides professional recruitment, flexible staffing and other human resource services (payroll, training) to over 2,000 clients from 30 diversified sectors such as financial institutions, retail & consumer, IT and telecommunications.

HRnetGroup - Investment Highlights

Maintain BUY and S$0.72 target price, 7% upside with ~4% yield.

  • 2020 was a tough year for HRnetGroup, due to the COVID-19 pandemic. Hiring slowed down, and the lower number of job placements the company made led to a decrease in revenue from professional staffing. However, as economic growth is expected to recover this year, demand for new hires should rebound – and we expect the company to benefit from this. We remain bullish on its outlook.

Negative news mostly priced in.

  • With COVID-19 having negatively affected HRnetGroup’s business, its professional staffing segment – which yields the highest margins – reported a 27% y-o-y decline in business for 1H20. This crimped its overall margin. The impact lingered in 2H20, but we think that most of the negative news and downbeat outlook have already been priced in. As economic growth is expected to pick up, earnings should rebound in 1Q-2Q21.

3.6% dividend yield for FY21F.

  • HRnetGroup announced dividend of 2.5 cents for FY20, which is in line with our forecast. With its net cash balance sheet and strong cash flow generation, on top of a brighter outlook and the expectation of improved results ahead, we expect dividends for FY21F to be higher than that of FY20.

Hiring is correlated to GDP growth.

  • A country’s GDP growth is a key indicator on how its economy has performed. While global GDP growth fell in 2020 – and the downtrend is expected to continue in 1H21, we also think the world has adjusted to the pandemic, and economic growth should bottom out in 1H21.
  • In the meantime, positive news on vaccine trials – which may lead to improved vaccine rollouts – should help boost economic growth. If this happens, we can expect demand for jobs and new hires to pick up.

Net cash pile is equivalent to 55% of its market cap.

  • HRnetGroup has been an efficiently run company compared to its global peers – many of these are running at a loss during this tough period. It is still generating positive cash flow, and has S$333m of net cash – which is equivalent to 60% of its market cap.
  • HRnetGroup is also trading at 14x FY21F P/E. We believe the company is a decent proxy to the global economic recovery, and maintain our BUY rating. Our target price is pegged to 15x FY21F P/E.

HRnetGroup - Company Report Card

  • Latest results. HRnetGroup's Revenue is up slightly 2.4% y-o-y to S$433m despite the pandemic but the shift of balance resulting in less revenue from professional recruitment with higher margins caused PATMI to sink 9.2% y-o-y to S$46.9m.
  • Balance sheet/cash flow. As at end-FY20, HRnetGroup maintained its net cash position, which is about S$333m or 55% of its market cap. We expect its net cash position to improve as it continues to generate positive cash flow.
  • ROE. HRnetGroup’s ROE has remained steadily between 14-15%, and we expect this uptrend to continue.
  • Dividend. HRnetGroup continues to reward shareholders with attractive and sustainable dividends – a yield of 3.6% for FY21F.
  • Management. Peter Sim is the Chairman, who founded HRnetGroup in 1992 and has over 40 years of expertise in social work, human resource management, and talent acquisition.

HRnetGroup - Investment Case

Proxy to economic recovery.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-05-05
SGX Stock Analyst Report BUY MAINTAIN BUY 0.720 SAME 0.720