Jovi Ho Fri, Jul 08, 2022
The labour shortage is a boon to HRnetGroup, say CGS-CIMB Research analysts Kenneth Tan and Lim Siew Khee, as the hiring outlook remains robust.
In a July 6 note, Tan and Lim are maintaining “add” on HRnetGroup with an unchanged target price of $1.15, which represents a 47.4% upside.
Singapore’s 1Q2022 unemployment rate (2.2%) has recovered close to pre-Covid-19 levels, driven by easing measures and greater hiring activity. The pre-pandemic average (2010-2019) was 2.1%.
Job vacancies to unemployed ratio rose to a record high of 2.42 in Mar 2022 (compared to 2.11 in December 2021), with the bulk of job vacancies stemming from construction and manufacturing, financial services, technology, education and professional services.
Tan and Lim cite ManpowerGroup’s 3Q2022 Singapore employment outlook survey. The Fortune 500 American multinational corporation says Singapore’s net employment outlook in 3Q2022 reached its highest recorded level since 4Q2011. This metric is an indicator of employers’ hiring intentions in Singapore.
In addition, talent shortage is expected to reach a new high in 2022, with 84% of surveyed employers expecting difficulties in sourcing talents. Finally, employers from all sectors expect positive headcount growth in 3Q2022, with employers from the finance and real estate sectors expressing the strongest hiring intentions.
Tan and Lim also see upside to salary increments in 2HFY2022. From August 2022, the Public Service Division will be raising the salaries of civil servants by 5%-14%. “We believe this could trickle down to the private sector in due course. Coupled with ongoing talent shortages and inflationary pressures, we believe employers could increase salaries further to attract and retain their pool of talents.”
Tan and Lim believe these data points reinforce their view that the hiring outlook remains robust, which should bode well for HRnetGroup’s permanent placement volumes and revenue per placement, which is dependent on salaries.
China business
In China, Tan and Lim believe HRnet has been able to capture strong hiring demand from sectors like semiconductors and luxury retail.
HRnetGroup’s China business was not significantly impacted despite lockdowns, write the analysts. “We recently spoke with management from HRnetGroup. 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, HRnetGroup mostly focuses on mid-senior level hires within China, which “should enjoy more resilient demand compared to fresh graduates”, they add.
The group has grown its North Asia gross profit from $46 million in FY2014 to $72 million in FY2021 (CAGR: 6.7%).
HRnetGroup has a “strong net cash position” of 45% of its current market cap, says Tan and Lim, while also noting that the start of the group’s $30 million share buyback programme in June, or up to 10% of issued shares, reflects the management’s optimism.
“The group has only repurchased 0.1% of issued shares YTD… Re-rating catalysts include quicker recovery in the China job market and M&As. Downside risks include prolonged Covid-19 restrictions in China and recession risks.”
As at 2.35pm, shares in HRnetGroup are trading flat at 77.5 cents.