Proxy to tight labour market in Singapore
We see HRnet as a beneficiary of the current tight labour market as
Singapore eases its border restrictions and reopens the economy. In
particular, we expect the professional recruitment (PR) segment to drive
core EPS growth in FY22 along with rising wages and placement volumes,
while the flexible staffing (FS) business should continue to do reasonably
well. Backed by its strong balance sheet, the Group just announced it will
establish a SGD30m share buyback programme. Maintain BUY and TP of
SGD1.07, still based on 16x FY22E P/E.
Professional recruitment to drive growth
A 5-14% pay rise for civil servants scheduled for Aug 2022 could have a
knock-on effect on private-sector salaries. According to channel checks,
there is a widespread talent shortage, especially in IT and life sciences
(which accounts for 15% and 26% of FY21 revenue). As the Group’s fees are
based on a percentage of salaries offered to successful candidates, HRnet
will be able to ride on this increase in salary levels across geographies.
This may potentially provide some upside surprise to our PR revenue
forecast (FY22E: +11% YoY).
Expect flexible staffing to remain firm
The Group recently secured a two-year contract from 2022 to 2024 (with
a further option to extend for another year), for the recruitment of
administrative and ancillary positions for Singapore General Hospital.
Notwithstanding the recovering economy, external macro risks remain and
demand for flexible staffing should stay firm, in our view. This is because
some organisations such as SMEs may wish to obtain workers on a needs
basis, instead of carrying permanent headcount that adds to their rising
operating expenses amid the inflationary environment.
Establishes a SGD30m share buyback programme
Since its IPO in Jun 2017, HRnet had a net increase of 15 Business Leader
Co-owners from 22 to now 37, who personally invest in the business units
that they operate. Armed with net cash of SGD327m (c.44% of its market
cap), HRnet is setting up a SGD30m share buyback programme, which
allows the Group to purchase its shares (up to 10% of its issued shares or
100.38m shares) whenever the stock may be undervalued due to market
conditions. Shares repurchased under the programme will be held as
treasury shares that could be used for employee share plans, as well as
possible currency for accretive M&A activities.