HRnetGroup – Proxy to tight labour market

Excerpts from Maybank report

HRnetGroup Ltd (SGX: CHZ)

• Proxy to tight labour market in Singapore
• HRnetGroup is 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.
• 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.

HRnetGroup 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.

HRnetGroup establishes a SGD30m share buyback programme

Since its IPO in Jun 2017, HRnetGroup 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 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.

You can find the full report here and the company website here