Hiring still robust in 1H22
- North Asia gross profit surprised positively, rising 24% yoy to S$41m. Core net profit in line at 49%/47% of our/Bloomberg consensus FY22F forecasts.
- While we expect further labour market recovery as economies reopen, we lower our FY23-24F EPS slightly on weaker macro climate and higher costs.
- Reiterate Add at lower TP of S$1.08, now pegged to 15.7x FY23F P/E (vs. 17x previously). Net cash remains strong at c.42% of current market cap.
1H22: volumes going strong amid business recovery
HRnet reported a 1H22 net profit of S$35m (+17% hoh, -4% yoy). Excluding gain/loss from financial assets and one-off trade accrual reversals, core net profit of S$33m (+2% hoh, +12% yoy) was in line with our expectations and formed 49% of our and 47% of Bloomberg consensus FY22F forecasts. 1H22 revenue growth of 14% yoy was driven by both higher permanent recruitment (PR) and flexible staffing (FS) contribution. Positively, average revenue per hire for PR and FS rose 21% and 8% yoy, respectively, which we believe were driven by ongoing salary increments across the region. The group declared its maiden interim dividend of 2.13 Scts; we expect an FY22F dividend yield of 5.3%.
North Asia surprised positively despite tight pandemic restrictions
1H22 gross profit contribution from North Asia (mostly China, Hong Kong, and Taiwan) rose to S$41m (+4% hoh, +24% yoy), forming 44% of total GP (vs. 1H21: 40%). We felt this was a positive surprise given tight pandemic restrictions in the region. Management shared that growth was largely driven by the semiconductor sector, with robust hiring seen in China (building up of domestic capabilities) and Taiwan (semiconductor incumbent). Across all of HRnet’s operating regions, the highest contributing sectors in 1H22 (as a % of revenue) were healthcare (22%), tech (19%), and finance (18%).
Salaries to remain elevated, but macro concerns are a dampener
We believe ongoing tightness in the labour market should further support upward revision in placement salaries. Labour demand from travel and consumer-related sectors should remain robust since Singapore eased its pandemic restrictions in Apr 22. However, we believe employers could slow the hiring of full-time staff in view of 1) weakening macroeconomic environment, and 2) inflationary pressures. We lower our FY23-24F GP by 0.4-3.8% as we increase the proportion of lower-margin FS contribution. We also factor in higher staff expenses. Our FY23-24F EPS is lowered by 1.8-2.1% accordingly.
Reiterate Add at a lower TP of S$1.08
Reiterate Add. Net cash remains strong at S$332m (vs. 2H21: S$352m), which accords the group ample firepower for M&A opportunities, in our view. In view of slower-than-expected earnings growth, we lower our TP multiple to 15.7x FY23F P/E (+0.7 s.d. from 5- year historical mean). Re-rating catalysts include improving macroeconomic conditions, quicker recovery in North Asia, and accretive M&As. Downside risks include quicker deterioration in hiring sentiment, and prolonged pandemic restrictions in North Asia.
