HRnetGroup Ltd: Homing in on hot jobs
- At job vacancy-to-unemployed ratio of 2.5x – highest since 1998 – Singapore’s job market still tight, despite global uncertainties
- Ability to navigate economic downturns with twin engines, unique ownership model, and diversified business
- Largest recruitment group in Asia (ex-Japan) with room to grow in new and existing markets
- With 40% market cap in cash and at just 11.5x FY23F PE (or c.7x ex-cash PE), reinstate BUY, TP of S$1.08
Singapore labour remains tight; market likely to stay resilient in 2H22 (with high job vacancy-to-unemployed person ratio). Singapore’s job market remains tight, with the job vacancy-to-unemployed person ratio at 2.5 – the highest in 24 years since 1998. Despite geopolitical uncertainties and the inflationary environment, this tight labour market should bode well for HRnet and is likely to continue into 2H22. Even after a record profit year in FY21, we project continued growth of 2%/3% for HRnet as a result of it leveraging its dominant position, twin engines, and wide coverage of sectors.
Strong ability to pivot across sectors, helmed by unique ownership model. HRnet has been versatile in pivoting towards the “hot” sectors requiring staffing, given its unique ownership model and mindset. As can be seen during the COVID-19 pandemic, HRnet’s contribution from healthcare grew to 26% in 2H21, from 11% pre-COVID. Its entrepreneurial mindset in an organised corporate outfit as well as its remuneration cum reward structure enabled it to tide out the downturn and achieve record profits in 2021, which is commendable and provides comfort to shareholders.
Earnings growth to be led by expansion in new and existing markets. HRNet has expanded its operations from 10 cities since its IPO to 15 cities currently. Despite the relatively mature market in Singapore, management has also indicated that there are still further areas of growth, particularly in large contracts with government agencies. Moreover, we also believe that the North Asia segment, which has a focus on the semiconductor industry, will benefit from the structural uptrend of the semiconductor segment. Its war chest of cash also opens up possibilities for accretive acquisitions.
Valuation:
Our TP of S$1.08 is based on the mean ex-cash PE of peers at c.11.5x on FY22/FY23 earnings
Key Risks to Our View:
Prolonged recession which results in significant labour market weakness and falling wages.
