Analysts from Maybank Securities, CGS-CIMB Research and PhillipCapital have maintained their “add", "buy" and "buy” calls respectively for HRnetGroup (HRnet) after the group’s net profit for the 1HFY2022 stood in line with their expectations.
HRnet’s 1HFY2022 underlying net profit after tax (Npat), excluding the profit and loss impact of its investments in mainly human resources marketable securities, jumped 36% year-on-year (y-o-y) to $42.6 million, driven by robust operating performance of both flexible staffing and professional recruitment in its key markets.
Maybank’s Eric Ong, whose unchanged target price (TP) of $1.07 is based on 15x FY23E P/E, writes: “Overall, 1HFY2022 net profit was in line with market expectations and our FY2022 to FY2024 earnings per share (EPS) forecasts are largely unchanged. The group declared a maiden interim dividend per share (DPS) of 2.13 cents, representing 50% of its core earnings.”
He points out that professional recruitment revenue grew 18.6% to $52.2 million along with higher remuneration packages across the board even as placement volumes stayed “flattish” at 3,691 from 3,734 in 1HFY2021.
“We note that contribution from the financial services sector rose from 14% to 18% as its European and Asian banking clients expanded their manpower needs in Singapore. Meanwhile, flexible staffing turnover rose 13.2% y-o-y to $259.8 million as average monthly contractor volume increased by 12% to 17,954 with the deployment of workers to travel-related and consumer-facing sectors following the relaxation of borders,” he says.
Meanwhile, Kenneth Tan of CGS-CIMB says HRnet’s 1H2022 revenue growth of 14% y-o-y was driven by both higher permanent recruitment and flexible staffing contribution which rose by 21% and 8% y-o-y respectively for average revenue per hire, driven by ongoing salary increments across the region.
Tan has lowered his TP to $1.08 from $1.15 previously.
However, in view of “slower-than-expected” earnings growth, Tan has lowered his TP to $1.08 from $1.15 on the back of a lower TP multiple of 15.7x FY2023 P/E, 0.7 standard deviations (s.d.) up from HRnet’s 5-year historical mean.
“We believe ongoing tightness in the labour market should further support upward revision in placement salaries. Labour demand from travel and consumer-related sectors should remain robust since Singapore eased its pandemic restrictions in April 2022,” says Tan, adding that he believes employers could slow the hiring of full-time staff in view of weakening macroeconomic environment and inflationary pressure.
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He has lowered his FY2023 FY2024 gross profit forecast by 0.4% to 3.8% while increasing the proportion of “lower-margin” flexible staffing contribution and factors in higher staff expenses. His FY2023 to FY2024 EPS has also been lowered by 1.8% to 2.1% accordingly.
Positively, Tan notes that North Asia performance “surprised” despite tight pandemic restrictions, with a 44% 1HFY2022 gross profit contribution to HRnet from North Asia, in mainly China, Hong Kong, and Taiwan, rising to $41 million, up 24% y-o-y.
“We felt this was a positive surprise given tight pandemic restrictions in the region. Management
shared that growth was largely driven by the semiconductor sector, with robust hiring seen in China (building up of domestic capabilities) and Taiwan (semiconductor incumbent),” he writes
Maybank’s Ong says that growth in North Asia “continues to impress”, noting that geographically, revenue from North Asia continued to increase by 28.4% y-o-y, accounting for around 30% of HRnet’s 1HFY2022 topline. “Notably, revenue growth in China and Taiwan was 25.2% and 19.3%, boosted by its specialization in the semiconductor industry,” he adds.
Across all of HRnet’s operating regions, the highest contributing sectors in 1HFY2022 as a percentage of revenue were healthcare, tech and finance at 22%, 19% and 18% respectively.
Downsides to Ong’s valuation are slower-than-expected organic growth in existing markets and margin pressure from increased competition in HRnet’s key markets, as well as “execution missteps” in inorganic growth that would create a drag on returns due to idle balance sheet or non-accretive acquisitions.
Finally, PhillipCapital’s Paul Chew has kept his TP of $1.18, along with his FY2022 earnings forecast.
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“The target price is a huge discount to global peers. We excluded the cash from valuations as peers have leverage to operate the business,” he writes.
In his report, Chew is positive on the group’s strong growth outside of Singapore. During the 1HFY2022, he notes that the group’s revenue from the rest of Asia contributed 40% to the overall sum, up from the 28% in the FY2020.
The return of $100 million in cash to its shareholders is also another plus for investors, the analyst says.
The sum includes the group’s planned share buybacks of $30 million, its final dividend of three cents (amounting to $30 million) in the FY2021 as well as the special dividend of 1 cent (totalling $10 million) that was declared in November 2021.
Looking ahead, Chew remains buoyant on HRnet’s prospects. “In Singapore, we expect the high job vacancy rates and re-opening of borders to drive revenue growth. For instance, there has been a decline in Covid-19 related vaccination roles replaced by other non-Covid medical needs as foreign tourist and elective procedures return.”
“The sustainability of growth in North Asia can improve if lockdowns ease,” he adds, noting HRnet’s ability to move into the faster growing segments of the economy.
“Despite the slower economic growth and lockdown in North Asia in 1HFY2022, revenues expanded 28% y-o-y in 1HFY2022. HRnet capitalised on the strong demand from semiconductor headcount by local and multinational companies,” says Chew.
As at 2.15pm, shares in HRnet were trading flat at 79 cents with a dividend yield of 4.59%.
