RHB Bank Singapore's Alfie Yeo has kept his "buy" call and 91 cents target price on regional recruitment firm HRnetGroup, following "generally stable" Singapore job market data for the quarter to June.
Yeo maintains his upbeat call on the stock in anticipation of faster GDP growth, which will lead to stronger hiring.
The bank is forecasting Singapore’s GDP growth to increase from 2% this year to 3% in 2024 with a boost from China’s reopening.
"As such we believe HRnetGroup will benefit from a more positive labour market next year and deliver earnings growth," writes Yeo in his Sept 19 note.
In the near term, there’s some near-term moderation in employment growth, notes Yeo, who has therefore trimmed his FY2023 and FY2025 earnings estimate for the company by 2%.
Nonetheless, there's still an increase in new hiring and thus Yeo is pencilling in a 5% CAGR earnings growth for FY2023 to FY2025.
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"We still expect the hiring recovery to be driven by the acceleration of economic growth heading into 2024," adds Yeo.
HRnetGroup now trades at a compelling valuation with a forward PE of 11x, which is 0.5 standard deviation below its historical mean, says Yeo.
His target price of 91 cents is pegged to 0.5 standard deviation above the historical mean of the forward P/E.
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Besides compelling valuations, Yeo likes HRnetGroup too for its cash-generative ability, strong net cash of 24 cents per share, an attractive dividend yield of 5%.
There’s also an active share buyback programme, which will help support earnings per share growth.
And last but not least, the company is a beneficiary of the economic recovery going into FY24 – especially in Singapore and China, given how it has operations in China too.
Key risks, on the other hand, include a slower-than-expected recovery in the key labour markets of Singapore, China, and Taiwan, says Yeo.
HRnetGroup shares last traded at 75 cents, unchanged for the day.
