Hiring sentiment continues to improve
? Latest unemployment figures reflect a broad-based improvement in labour markets for both Singapore and North Asia, which should continue in 2022.
? We expect HRnet to record 2H21F net profit of S$31m (+20% yoy) given continued strength in hiring volumes and rising salaries.
? Reiterate Add with a TP of S$1.15. We think HRnet is well positioned for further hiring momentum in FY22F as labour markets continue improving.
Singapore labour market continues to improve
As announced by the Singapore Ministry of Manpower on 28 Jan 2022, the overall unemployment rate improved to 2.4% in Dec 21 (from 2.5% in Nov 21). On an annual basis, overall unemployment (preliminary figures) improved to 2.6% (vs. 3.0% in 2020) but remains above pre-Covid levels (c.2.1-2.2%). 4Q21 employment in F&B and retail rebounded, which we believe was driven by seasonal strength and gradual easing of restrictions. IT and Financial Services also saw steady employment growth.
Broad-based improvement observed in North Asia
Similarly, we note that the hiring landscape generally improved in 2H21 across HRnet’s key markets in North Asia (Fig 2). Markets which recorded the largest improvements in unemployment rates (in Jul – Dec 2021) were Hong Kong (5.0% to 3.9%) and Taiwan (4.4% to 3.7%). The labour market in China saw marginal improvement, which we believe was due to Covid-driven lockdowns and tighter regulatory crackdowns across various industries. Continued labour market improvements across the region should help drive HRnet’s FY22F EPS growth, as North Asia boasts a higher GPM (FY14-20: c.61%) and forms a sizeable bulk (FY14-20: c.40%) of HRnet’s gross profit.
2H21F preview: Hiring momentum should have been strong
We expect stronger permanent placement contribution due to 1) rising salaries supporting GP per placement, and 2) increasing volumes as companies ramp up bench strength. We believe that contractor demand remained elevated in 2H21F due to ongoing foreign labour shortage and tight border restrictions. We forecast a higher 2H21F GP of S$86m (+29% yoy) due to ramp up in higher margin permanent placements, and expect HRnet to record 2H21F net profit of S$31m (+20% yoy). Accordingly, we raise our FY21F EPS by 17%, bringing FY21F net profit to a record S$67m (+43% yoy).
Retain Add with a S$1.15 TP on continued labour market recovery
We believe that HRnet is well positioned for further hiring momentum as labour markets continued their recovery trajectory. The group is debt-free with strong net cash of S$315m (c.40% of current market cap) at end-1H21, which could support M&A activity. We reiterate our Add call with a TP of S$1.15, pegged to 17x FY22F P/E which is based on +1 s.d. from the group’s 4-year historical mean in view of expected positive labour market recovery. Potential re-rating catalysts include increased job creation and M&As. A key downside risk is deteriorating macroeconomic conditions.