HRnetGroup - Phillip Securities 2022-06-20: Resilient Demand, Buy-Backs & More Regional Expansion


HRnetGroup - Resilient Demand, Buy-Backs & More Regional Expansion

  • Demand for jobs remains robust in Singapore with record job vacancies. HRnetGroup (SGX:CHZ)'s franchise is expanding further regionally with new co-owners in Indonesia, Shenzhen, Hong Kong and Shanghai.
  • HRnetGroup announced on 13 June 22 that it is undertaking a S$30mil share buyback, equivalent to almost six months average daily volume.
  • While the barrier to entry in the recruitment industry may be low, we believe the barriers to scale are immense. HRnetGroup possesses a network of more than 700 recruiters across 14 Asian cities. These barriers allow HRnetGroup to maintain an asset-light model with minimal fixed assets of S$1.5mil.
  • HRnetGroup's reported return on equity is 16% but arguably much higher. Total attributable equity is S$370mil, almost equivalent to the net cash of S$327mil. In other words, HRnetGroup could return a large chunk of capital to shareholders and still sustain profitability, especially with S$114mil working capital already tied as trade debtors.

Investment Thesis

Robust demand for jobs in Singapore.

  • Singapore is experiencing a robust recovery in jobs. In 1Q22, employment rose by 42,000. Employment growth was across all sectors including 17,500 from services. Financial and professional services enjoyed the largest growth in employment in more than a decade. PMET vacancies were the highest on record, at around 70,000.
  • A tight labour market and difficulty in sourcing candidates invariably led to higher reliance on recruitment agencies. Hiring managers have no desire to spend hours interviewing and assessing candidates. It is a waste of a hiring manager’s precious time. Clients want recruiters to identify the best one or two options for them. The ratio of job vacancies to unemployed persons in 1Q22 was 2.4, the highest since 3Q97.

Further regional expansion.

  • This year HRnetGroup has added several new co-owners in Indonesia, Taiwan (TW), Malaysia (MY), Hong Kong (HKG) and China. Co-owners are an important incentive tool to grow the regional franchise with local management. Co-owners get a stake in the company’s earnings, are entitled to dividends and a pre-agreed exit path.

Barriers to scale.

  • Under the HRnetGroup's umbrella, co-owners can enjoy the branding with clients, higher pricing, shared services (e.g. accounting, legal, IT and HR), client referral across their network, regional and multiple industries and other services including RecruitFirst for flexible hires.


Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2022-06-20
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