The best is yet to come
? 2H21 net profit growth (+14% yoy) was driven by strong GP contribution from professional recruitment (PR, +35% yoy) and flexible staffing (FS, +45% yoy).
? We expect PR contribution to continue strong into FY22F, amid rising salaries and placement volumes. FS volumes expected to remain firm.
? We like HRnet as a proxy for continued labour market recovery across Asia. Reiterate Add at S$1.15, pegged to 17x FY23F P/E.
2H21 spurred by strong PR and FS performance
HRnet recorded a 2H21 net profit of S$30m (+14% yoy), in line with our expectation. This brought FY21 net profit to a record S$65m (+40% yoy), forming 98%/106% of our/consensus’ FY21 forecasts. PR volumes came in strong at c.4k (+16% yoy), in tandem with the recovery in labour markets across Asia. FS volumes were higher than expected, at 19k monthly contractor employees as at end-2H21 (+34% yoy), as
contractor demand remained high amid tight border restrictions. The group proposed a final dividend of 3 Scts, bringing FY21 DPS to 4 Scts (c.5% FY21 dividend yield).
Broad-based improvement across HRnet’s operating regions
Winning sectors in FY21 (as a % of total revenue) were healthcare (26%) and governmental (18%), followed closely by tech (15%) and financial services (15%). Positively, all of HRnet’s operating regions (Singapore, North Asia, and Rest of Asia) recorded yoy growth in FY21. However, we note that North Asia’s GPM declined to 27% (vs. 40% in FY20), which we believe is largely attributed to headwinds faced in China (governmental crackdowns on certain industries, tight Covid-19 restrictions, etc).
Expect continued uptrend in PR, while FS to remain firm
We remain optimistic of labour markets continuing its recovery in FY22F. PR will likely be the key earnings driver, due to: 1) salary increments to retain and attract talent, and 2) ramping up bench strength in preparation of heightened business activity. While FS volumes were exceptionally strong in FY21, we expect demand to remain firm in FY22F on the back of: 1) lag time for businesses to fill vacancies, and 2) increased demand for temporary workers in sectors exposed to tourism. We raise our FY22-23F gross profit by 1% to reflect a higher mix of PR to FS (PR boasts higher margins), while trimming our FY22-23F EPS slightly by 2-4% in view of higher opex and tax expenses expected.
Attractive proxy for labour market recovery
Reiterate Add. We continue to like HRnet as a proxy play for continued labour market recovery across Asia. We roll over our valuation to FY23F and maintain our TP at S$1.15, pegged to c.17x FY23F P/E (+1 s.d. from 4-year historical mean, in view of expected recovery in labour markets). With net cash at c.45% of current market cap, HRnet trades at an attractive 6x FY23F P/E (ex-cash). Re-rating catalysts include
increased job creation and M&As. Key downside risk is deteriorating macroeconomic conditions.