June 14

HRnet Group IPO: Here’s A Quick 5 Minute Digest…

Coming 16 June 2017, the Singapore Exchange will welcome its first recruitment agency onto its mainboard.

From its IPO, HRnet Group will be offering 89.48 million shares, with 3.8 million shares available for the public. Offer price per share will stand at S$0.90.

With its IPO coming to an end on 14 June 2017 12pm, here is what you need to know before subscribing!

HRnet Group’s Businesses

The businesses can be classified into two main areas, mainly professional recruitment and flexible staffing. Flexible staffing refers to the hire of temporary employees or independent contractors and this accounts for 75% of its revenue. According to its prospectus, the company has over 2000 clients which includes 104 Fortune 500 clients.

Their businesses operate in 10 Asian cities, which includes Hong Kong, China, Thailand and South Korea. However, the main bulk of their business still come from Singapore, which accounts for 57% of their gross profit.

hrnet experience

Use of Proceeds

The company expects to raise net proceeds of $165.8 million from its IPO. All of the net proceeds have been earmarked to undertake business expansion and/or potential opportunistic acquisitions.

As of now, no targets for acquisition has been identified.

Financial Health

Revenue for the company has been increasing over the past 3 years at an annual rate of 6.3%. In terms of Its net profits, there was an even higher growth of about 13.8% annually. The figures are graphed below.

hrnet revenue hrnet profits

Looking at its cashflow over the past 3 years, its businesses has been constantly bringing in cash. In 2015, net operating cashflow was around S$49.6 million before increasing to S$53.4 million in 2016.

However, it is worth noting that its pool of cash and cash equivalents has decreased by 12.2% over the same period. This is due to the company paying out more cash as dividends, considering that its share capital increased by 12.7 times from 2015 to 2016.

Growth Prospects

According to Frost & Sullivan, HRnet Group is the largest recruitment player by revenue in Singapore with a market share of 20.5%. Its revenue sources also come from different industries, mitigating the impact of sector risks.

hrnet customers

Taken from Prospectus: Revenue sources of HRnet Group

Moving forward, as of last year, HRnetGroup received an $11.4 million lift in the form of government grants and subsidies. You can read more about it here. However, this is expected to be cut down this year as Wage Credit Scheme (WCS)’s level of co-funding will be reduced from 40% to 20%. As such, operating costs for the company may face increasing pressure.

SCA Bottom-line

With its adjusted EPS of 4.06 cents in 2016, this will translate to a P/E ratio of 22.2. I will say that this will fall relatively on the high end although it offers a decent 2.4% dividend yield.

Given its nature of businesses, it provides a good cushion towards sector risks and may be a good add towards one’s portfolio.

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Tags

HRnet, IPO


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