After 14% y-o-y growth in 2HFY2021 net profit, “the best is yet to come” for HRnetGroup Limited, say CGS-CIMB Research analysts Kenneth Tan and Lim Siew Khee.
HRnetGroup provides personnel recruitment and human resource related services under two key segments: Professional Recruitment (PR) and Flexible Staffing (FS).
In a Feb 25 note, Tan and Lim maintain their “add” call on HRnetGroup, with an unchanged target price of $1.15. This represents an upside of 47.4%.
HRnetGroup reported record net profit of $65 million for FY2021, up 40% y-o-y, forming 98% and 106% of CGS-CIMB and consensus FY2021 forecasts respectively.
“PR volumes came in strong at 4,000 (up 16% y-o-y), in tandem with the recovery in labour markets across Asia. FS volumes were higher than expected, at 19,000 monthly contractor employees as at end-2HFY2021 (up 34% yoy), as contractor demand remained high amid tight border restrictions,” write Tan and Lim.
The group proposed a final dividend of 3 cents, bringing FY2021 DPS to 4 cents.
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“We remain optimistic of labour markets continuing its recovery in FY2022F. PR will likely be the key earnings driver, due to salary increments to retain and attract talent, and ramping up bench strength in preparation of heightened business activity,” write Tan and Lim.
They continue: “While FS volumes were exceptionally strong in FY2021, we expect demand to remain firm in FY2022F on the back of lag time for businesses to fill vacancies, and increased demand for temporary workers in sectors exposed to tourism.”
CGS-CIMB is raising HRnetGroup’s FY2022-FY2024 gross profit by 1% to reflect a higher mix of PR to FS (PR boasts higher margins), while trimming FY2022-FY2023 earnings per share (EPS) slightly by 2%-4% in view of higher opex and tax expenses expected.
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Meanwhile, Maybank Securities analyst Eric Ong thinks an accretive acquisition could be on the cards.
“Management expects business recovery to be more broad-based across sectors/regions as borders begin to reopen. This contrasts with the past two years when hiring was mostly driven by the government, healthcare and IT sectors due to disruption caused by Covid-19. Backed by its robust net cash of $327 million (about 42% of market cap), the group is well-positioned for synergistic M&A opportunity, possibly in Mainland China, in our view,” says Ong.
In a Feb 26 note, Ong is maintaining “buy” on HRnetGroup with a slightly higher target price of $1.07 from $1.02 previously.
RHB Group Research analyst Jarick Seet praises HRnetGroup for its management and dividend payouts.
“Total dividends declared for FY2021 was $35.1 million, up 25% y-o-y from FY2020. With such strong performance likely to continue, we expect management to keep rewarding shareholders with attractive dividends. As a result, we expect a 5.6% dividend yield for FY2022F using a 60% payout ratio,” writes Seet.
In a March 1 note, Seet is maintaining “buy” on HRnetGroup with a raised target price of $1.01 from 93 cents previously, the most conservative figure among these three research houses.
“In our view, HRnetGroup is an efficiently run company [compared to] global peers — many of which are running at a loss during this tough period. The counter is also trading at 10.7x FY2022 P/E, which is lower than the global peer average. We believe it is a decent proxy to the global economic recovery, and will enjoy a strong FY2022.”
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Finally, PhillipCapital analyst Paul Chew is keeping "buy" on HRnetGroup after its results surpassed his full-year estimates.
He has raised his target price to $1.18 from $1.05 previously as he raises the group's FY2022 earnings estimates by 20%.
"The valuation metric is lowered from 14x to 12x P/E FY2022 ex-cash. We tag to the mid-range of the historical five- year range as the labour recovery has moved past the peak cycle. HRnet pays a dividend yield of 5%, net cash of $327 million and unlevered return on equity (ROEs) of 16% (or above 100% ex-cash)," writes Chew.
In FY2022, the analyst is anticipating another record year.
"Volume growth in permanent hires will come from recovering economic conditions and clients working more with recruiters due to the tight labour market. Rising salaries will be the driver for higher margins. Flexible staffing remains healthy as other sectors start to re-open," he says.
As at 10.32am, shares in HRnetGroup are trading flat at 77.5 cents.
Photo: HRnetGroup
