RHB Bank Singapore’s Alfie Yeo has kept his “buy” call and 84 cents target price on regional recruitment firm HRnetGroup (HRnet), following “stable” low unemployment rates in Singapore for the last quarter of 2023.
Yeo continues to view HRnet favourably in anticipation of economic recovery within Singapore and China.
“Our economist forecasts Singapore’s 2024 GDP growth to accelerate while maintaining strong GDP growth of 5% for China,” says Yeo.
The analyst notes that the gradual improvement of unemployment rates in Singapore from the third quarter to the last quarter of last year supports this recovery thesis.
The Ministry of Manpower’s (MOM) latest Monthly Unemployment Situation reported overall unemployment rates in December 2023 at a low 2%, with the citizen unemployment rate declining from 3% to 2.9% from the third to last quarter of last year.
Additionally, retrenchments from the third to last quarter of 2023 also dropped, falling from 4,110 to 3,460. With job vacancies to unemployed individuals growing from 1.64 to 1.74 in the last quarter of last year despite previous consecutive quarters of decline, recruitment rate similarly “inched up” from 2.2 to 2.3.
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Besides reported low unemployment rates, the analyst anticipates growing job demand in Singapore and China. With Singapore’s 2024 GDP growth forecasted to accelerate from 2023, it stands at an estimated 2.5% growth rate amidst better external environments. With more “robust” global demand supporting the recovery of domestic industries, the demand for labour will subsequently increase.
“MOM, in its report, also indicated that labour demand is expected to strengthen on the back of improving GDP growth,” notes Yeo.
Research findings report that 48% of surveyed firms in December 2023 intend to hire over the next quarter, an improvement from 42.8% recorded in September. A positive outlook of 32.6% of firms planning to raise wages in the next three months also signals a step up from the low of 18% in September 2023.
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In the context of China, Yeo forecasts sustained economic recovery and anticipates a 5% GDP growth for this year which could translate to greater job demand.
With these factors considered, Yeo’s target price at 84 cents is pegged at 0.5 standard deviations (s.d.) above the historical mean of the forward P/E, which the analyst deems as “compelling”.
Yeo favours HRnet for its cash-generative ability, strong net cash balance sheet, and an attractive dividend yield of 5%. With HRnet’s maintained share buyback programme, this will continue to uplift its earnings per share growth.
In addition, HRnet is attractive to the analyst due to its position as a beneficiary of the economic recovery forecasted for FY2024.
As at 11.58am, shares in HRnet are trading at an unchanged 73 cents.
