HRnetGroup - CGS-CIMB Research 2021-08-16: Exceeding Expectations


HRnetGroup - Exceeding Expectations

  • HRnetGroup delivered a record-high 1H21 net profit; 1H21 revenue/core PATMI rose ~31% y-o-y to S$275.1m/S$29.1m, helped by strong hiring momentum.
  • We expect strong FS volumes to drive revenue and gross profits for HRnetGroup in FY21F. We raise our FY21F-23F FS volume assumptions by 18%-30%.
  • Reiterate ADD with a higher target price of S$1.15, pegged to ~17x FY22F P/E (1 standard deviation above historical mean).

Strong beat in 1H21: FS/PR volumes rose 47.1%/6.1% y-o-y

  • HRnetGroup (SGX:CHZ) delivered a strong set of results in 1H21, with revenue/core PATMI rising ~31% y-o-y to S$275.1m/S$29.1m, above our expectations at 58%/56% of our full-year forecasts.
  • Flexible staffing (FS) surprised us with stronger-than-expected volumes of 17,123 (+47.1% y-o-y; CGS-CIMB: 15,200), ahead our FY21F estimate.
  • Permanent recruitment (PR) volumes of 3,760 (+6.1% y-o-y; CGS-CIMB: 4,107) were softer than expected but are recovering well; gross profit of S$43.8m (+24.6% y-o-y) formed ~90% of pre-COVID-19 levels in 1H19, helped by pent-up hiring demand and better remuneration packages for candidates

We remain positive on the pace of hiring activities in FY21F

  • HRnetGroup's 1H21 results reaffirm our thesis from our earlier note that labour markets are in a recovery mode, supported by strong hiring sentiments across Singapore and North Asia. See HRnetGroup - CGS-CIMB Research 2021-06-08: Hiring Season Around The Corner. FS/PR gross profits grew 33.5%/25.0% y-o-y in Singapore and 57.6%/23.9% y-o-y in China, respectively, reflecting strong hiring demand and good execution, in our view.
  • Despite a resurgence of COVID-19 cases recently across its key markets, we believe hiring sentiment will sustain and we expect recruitment volume to hold up strongly as labour markets continue to recover across its key geographies in FY21F.

Labour market recovery to drive recruitment volumes led by FS

  • HRnetGroup's management continues to be cautiously optimistic on its FY21F outlook, barring unforeseen circumstances. We expect
    1. FS volumes to remain strong, supported by shortage of foreign labour due to border restrictions and employers adopting a leaner business model,
    2. PR volume growth to sustain and achieve better rates due to tight demand for talent, especially for mid-senior positions, and
    3. government, technology and healthcare sectors to remain bright spots for hiring.
  • We raise our assumptions for FS volumes by 18%-30% for FY21F-FY23F and trim our FY21F PR volumes by 6.6%.

Raise FY21F-23F EPS; reiterate ADD with a higher target price of S$1.15

Darren ONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-16
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