If 2023 was a “challenging year” for HRnetGroup, 2024 has been a “gritty year” so far, according to Adeline Sim, the company’s executive director and chief legal officer.
For the FY2023 ended Dec 31, 2023, HRnetGroup reported earnings of $63.6 million, 5.9% lower than its FY2022 earnings of $67.5 million.
Revenue for the year also fell by 5.4% y-o-y to $578.5 million due to “challenging economic conditions” and “sector-wide profit downgrades”, noted the group in its results statement released on Feb 22. However, its profit margin remained relatively firm at 11.4%, 0.4 percentage points lower than FY2022’s 11.8%.
This year, while companies are still hiring — for sales roles in particular — there has been a shedding of regional layers, Sim observes.
“[People] are also holding back on senior hires unless they’re convinced [that the person is right for the role]. So the absolute volume has tapered down,” she adds during an interview with The Edge Singapore on May 31.
Sim also shares candidly that 2024 is “not a pretty year”, noting that the trend is not unique to the company. “Even if you look at our listed peers, 2024 is not a pretty year. So I don’t think we’re going to be out of trend.”
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When times were really bad as in the Covid-19 years of FY2020 to FY2022, HRnetGroup managed to report three straight years of record revenues when most companies experienced a decline in earnings.
In FY2020, the group reported a record revenue of $433 million although its earnings fell by 10.7% y-o-y to $49.8 million due mainly to higher sub-contractor expenses. In FY2021, HRnetGroup reported its best financial performance yet, with a new record revenue of $590 million. Its gross profit and earnings also reached a record $174.9 million and $65.5 million respectively as revenue for its flexible staffing and professional recruitment segments spiked. In FY2022, the group marked its third consecutive year of achieving a record revenue of $611.8 million with earnings of $72.5 million as revenues for its flexible staffing and professional recruitment segments rose.
In FY2023, however, the group saw a drop in the average number of contractors due to the one-off Covid-19-related flexible staffing volume that dissipated by April 2023. This was mitigated by contractor requirements in non-Covid spaces. FY2023 was also affected by the material corporate reductions that took place earlier in the year, moderating salary expectations compared to the higher salaries in FY2022 during the “great resignation wave”.
One of the trends that did emerge from the Covid-19 pandemic was the introduction of the work-from-home (WFH) model.
While HRnetGroup has been no exception to the phenomenon, Sim simply sees this as part of the company’s operating environment.
“[WFH] has become a factor of the operating environment that we have to work with, but it has not become a major [issue for us],” explains Sim, who adds that it’s about bridging the gap in expectations between their clients and their potential candidates.
In the face of changing workplace models, Sim cites flexibility as a valued option that potential candidates have begun to appreciate.
For FY2024, Sim says the group plans to leverage its platform across the 17 cities it is in, to build its regional key accounts and specialisations.
“[We are also looking at] extending our range of offerings to increase our share of HR revenue via Instant Pay, Instant Claims and HR consulting,” she adds. Finally, the group will seek to constantly refine its processes and operations to become more effective and efficient.
HRnetGroup operates efficiently, with a disciplined approach to cost management. For example, its offices have an occupancy rate of 120%, meaning there are 100 seats for every 120 employees. “It’s possible because we’re salespeople, and we’re out a lot of the time,” explains Sim. “But it’s a very concerted effort [for us] to do that. We’ve even combined all the different brands in Singapore, Malaysia, Hong Kong and Shanghai, where the staff share one pantry and one photocopier,, which really drives up efficiency.”
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“Today, for example, every room is booked up, because we’re fully making use of real estate,” she adds.
This disciplined approach extends to travel policies, with all employees flying economy class and operating without secretaries.
“We try to operate on a very lean basis because [with] every single person, the idea is to be aligned with the company’s goals. What we want to be is to be very profitable and very financially robust,” says Sim.
“We don’t want to be doing debt financing for operating expenses, because we have seen what happens to our peers when that happens. It’s hard to play the long game when we’re worried about debt,” she adds, noting that the company has had zero debt from the start.
An evolving business
HRnetGroup has grown significantly since its early days as a four-person team. The company’s first entity, HRnetOne, was founded in 1992 by Peter Sim, the founding chairman. His daughter, Adeline, joined the board in 2017.
Since its establishment, HRnetGroup has adopted a unique co-ownership model where various heads of staffing agencies within the company take equity stakes in their offices.
This structure further reaffirms the commitment of co-owners to the company and towards their respective roles. As contributing members, the co-owners also carry weight in making business decisions within their respective business entities, utilising their deep knowledge of their specific market needs, says Sim.
Today, HRnet Group has a total of 44 co-owners, which is a sharp increase from the 22 co-owners at the time of the company’s IPO in 2017.
To earn their “skin in the game”, these co-owners pay for their own stakes in the company, contributing up to $100,000 to $300,000 or more for their shares, says Sim.
“The whole idea is we want you to be an owner. We want the majority of your income to come from dividends, which aligns you with a long-term view. So we rarely hear [our partners] wanting to quit. It’s their baby,” she shares. “We feel that this co-ownership structure has been integral to who we are,” she adds.
This “enterprising spirit” forms the bedrock of HRnetGroup which intends to continue rallying the numbers of co-owners in the development of the company, as cited in a presentation detailing the company’s growth story on May 2.
A people-oriented company
During the interview, Sim cites the company’s ability to improve the lives of others as its “proudest milestone” thus far.
This is especially so for her father — one of his proudest achievements includes his experience in creating millionaires which has been “the most satisfying” to witness, she adds.
“That has always been our philosophy, asking ourselves how we can make people’s lives better,” says Sim.
With this company philosophy at its core, HRnetGroup focuses on personal growth among both its employees and clients alike. Going beyond a management perspective, the company provides its employees with opportunities such as regional exposure and leadership growth through managing a wide scope of talent.
This people-centric business model adopted by HRnet Group further extends toward the company’s considerations when selecting companies to partner with.
“We are usually not keen on [companies] who are just focused on capital market plays and want to sell out,” says Sim.
In the context of executive searches, she explains that as a “people business”, HRnetGroup is focused on selecting individuals who are interested in growing together.
“We are quite confident in telling [people] that if they come on board the platform, they will experience much greater growth simply because we are putting together people whose passions, energies and intellect are focused on uplifting and growing,” adds Sim.
A multi-generational approach
With CEO Peter Sim at the helm of HRnetGroup and his daughter on the board of directors, the company takes on a multi-generational approach towards its management style.
One difference between workplace culture in recent times and 25 years ago is how employees are no longer expected to don a suit and tie to work today, says Sim.
She identifies her father’s management style as “paternal”, carrying a personal sense of responsibility for the welfare and development of his employees.
“He has strong core values which permeate throughout the company,” says Sim.
Sim emphasises the value of increasing the company’s bandwidth, which she cites as one of the greatest pieces of advice her father has provided.
Adopting an open-minded attitude towards working with diverse groups of people, Sim elaborates that the company can work with an increased number of clients and improve the development of HRnetGroup as a whole.
In comparison, Sim takes on a practical approach to her management style, selecting employees who already meet company expectations. As an established regional company, she cites responsiveness as an essential trait that HRnetGroup employees should embody.
A lack of responsiveness can impede the progress and development of the company, explains Sim.
In explaining her personal goals for the company, Sim references the company’s motto cited in its May 2 presentation “To a 100 and beyond”.
Sim’s focus centres around ensuring long-term profitability and corporate longevity, aligning HRnet Group’s incentives according to its company goals.
“The idea is to always do our best,” she adds.
What the analysts say
HRnetGroup’s unique co-ownership structure and multi-generational management approach have garnered positive outlooks from the analysts who cover the stock.
“The 32-year evolution of HRnet Group has produced a company well equipped to capitalise on the opportunities within Asian staffing and recruitment,” says Storm Corporate research team in their note dated May 17.
In his report dated June 27, RHB Bank Singapore analyst Alfie Yeo kept his “buy” call and target price of 84 cents on HRnetGroup as he sees growth coming from economic growth in Singapore and China. He also likes the company for its cash-generative ability, strong net cash balance sheet and attractive dividend yield of 5%. Other pluses include the company’s “undemanding valuation” of 11 times forward P/E and continued share buybacks.
The analyst has, however, trimmed his earnings estimates for FY2024 to FY2026 by 3% each.
“Based on 1Q2024’s labour situation, we see a less robust outlook going forward. As such, we lower our growth rates for the number of placements and contractors from 5% to 2%,” he says, adding that the cut in earnings estimates reflected a “slower-than-expected growth outlook”.
According to the Ministry of Manpower’s (MOM) latest monthly unemployment situation for the quarter, Singapore’s overall unemployment rates inched up to 2.1% in March; unemployment rates for residents and citizens stood at 3% and 3.1% respectively.
“The latest MOM data showed continued expansion of the labour market in 1Q2024, albeit at a slower pace. While retrenchments declined, the unemployment rate increased,” Yeo notes.
PhillipCapital has also recommended a “buy” call on HRnetGroup while CGS International and Maybank Securities have “hold” calls. PhillipCapital’s target price is 85 cents while CGS and Maybank have the same target price at 80 cents.
