Labour shortage a boon
? Singapore’s 1Q22 unemployment rate (2.2%) has recovered close to preCovid-19 levels, driven by easing measures and greater hiring activity.
? In China, we understand that HRnet has been able to capture strong hiring
demand from sectors such as semiconductors and luxury retail.
? HRnet has a strong net cash position of c.45% of current market cap. We
reiterate Add at an unchanged TP of S$1.15, based on c.17x FY23F P/E.
Singapore labour markets recovering well
Singapore’s 1Q22 unemployment rate improved 0.7% pt yoy to 2.2% (vs. 1Q21: 2.9%) on
the back of improving economic activity. This is close to the average 10-year prepandemic (2010-2019) unemployment rate of 2.1%. Job vacancies to unemployed ratio
also rose to a record high of 2.42 at end-Mar 22. Recently eased border and domestic
restrictions in Singapore should further support hiring activity from consumer-facing and
travel-related sectors. According to the 3Q22 ManpowerGroup employment outlook
survey, employers’ hiring intention reached its highest level since 4Q11, with employers
from the finance and real estate sectors expressing the highest intent to hire.
Talent demand and salaries should remain elevated in the near term
The outlook for talent demand appears robust, based on the outlook commentary from
global recruitment services peers (Fig. 3). Key takeaways from their latest results include
1) 1QCY22 has been an exceptional quarter for many recruitment services firms
(especially in Asia Pacific) as labour markets rebounded, and 2) wage inflation and
shortage of talent are key drivers of rising salaries; these are expected to continue in the
near term. We expect HRnet’s permanent placement business to continue benefiting
from these trends and reaffirm our expectation of FY22F GPM expansion.
China business not significantly impacted despite lockdowns
We recently spoke with management from HRnet. Based on our conversation, we
understand that the group’s China business has not seen much negative impact despite
the challenging operating environment; examples of sectors seeing strong demand
include semiconductors and luxury retail. In addition, HRnet mostly focuses on mid-senior
level hires (within China), which should enjoy more resilient demand compared to fresh
graduates, in our view. Note that the group has grown its North Asia GP from S$46m in
FY14 to S$72m in FY21 (CAGR: 6.7%).
Reiterate Add at unchanged TP of S$1.15
The start of the group’s S$30m share buyback (up to 10% of issued shares) programme
in Jun reflects management’s optimism, in our view; the group has only repurchased
0.1% of issued shares YTD. Our TP is pegged to c.17x FY23F P/E, based on +1 s.d.
from 4-year historical mean. Re-rating catalysts include quicker recovery in China job
market and M&As. Downside risks include prolonged Covid-19 restrictions in China and
recession risks.