Maybank Securities analyst Eric Ong has kept “hold” on HRnetGroup with a lower target price of 70 cents from 80 cents previously amid growing macroeconomic uncertainties.
For its 1HFY2024 ended June, HRnetGroup posted a patmi of $21.7 million, down 23% y-o-y. This is below Maybank and consensus’ expectations at 41% and 38% of the full-year forecasts respectively.
Despite the lacklustre results, HRnetGroup maintained its interim dividends per share (DPS) of 1.87 cents, which translates to a record high dividend payout ratio (DPR) of 80%, Ong highlights.
During the period, the company’s professional recruitment (PR) revenue fell 16.4% y-o-y to $28.7 million as hiring freezes and cautious sentiment persisted across its key markets. Meanwhile, flexible staffing (FS) turnover slipped by 1.3% y-o-y to $255.3 million. After factoring in the direct cost of contractors’ salaries and social insurance benefits, the FS segment generated a gross profit margin (GPM) of 12.8% compared to 1HFY2023’s 13.8%.
For 1HFY2024, HRnetGroup’s blended GPM narrowed by 2.3 percentage points to 22% due to the continued shift in business mix towards FS as a result of the economic headwinds. Ong notes that the revenue proportion of FS rose to 89.3% in 1HFY2024 while the gross profit (GP) proportion increased to 52%.
“On a geographical basis, Singapore and Mainland China were the hardest hit as they account for 63.9% and 24% of the GP decline, respectively, with both PR and FS businesses impacted. The group’s business in Mainland China was predominantly in PR and the economy did not recover as expected,” he adds.
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That said, Ong points out that the company’s balance sheet is robust with net cash of $302 million and no bank borrowings. This allows it to explore accretive merger and acquisition opportunities to capture inorganic growth, particularly in other overseas markets.
Maybank has revised down its FY2024 to FY2026 earnings per share estimates by 12%-17% due to lower placement volume and margin assumptions.
Based on Maybank’s full-year DPS forecast of 4 cents, HRnetGroup’s yield is decent at 6% and should limit further downside to the stock, Ong says. “The share buyback should also help to provide some support, we think.”
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As at 12.13pm, shares in HRnetGroup are trading 0.5 cents lower or 0.7% down at 66.5 cents.
