SINGAPORE (May 11): RHB is reiterating its “buy” rating on HRnetGroup with a target price of $1.14.
This came on the back of the group announcing that its 1Q18 earnings have increased by 46% to $16.3 million from $11.2 million in 1Q17.
Revenue was 12.2% higher y-o-y at $107 million, led by flexible staffing and professional recruitment.
Revenue and gross profit from flexible staffing grew 12.8% and 15.1% respectively, due to continued business momentum, while revenue and gross profit from professional recruitment grew by 9.9% and 9.8% respectively from stellar performance in North Asia, particularly in Hong Kong and Mainland China.
See: HRnetGroup reports 46% higher 1Q earnings of $16.3 mil
The group managed to deliver on its promise during its listing, to expand its business units in North Asia.
In its results, gross profit from North Asia increased by $2.1 million, making up 40% of the total gross profit.
Meanwhile, the business environment in Singapore remained a stronghold for the group, as revenue and gross profit from flexible staffing increased on the back of stronger volume and higher value per contractor employee.
The group’s dividend policy is to pay out 50% of its net profit after tax (NPAT).
In a Thursday report, analyst Jarick Seet says, “We think that there is a possibility of interim dividends going forward, in order to reward shareholders. The stock is still trading below its IPO price and is substantially undervalued compared to international peers. As such, we think that management will likely use some of the group’s cash hoard to buy back shares for future M&As.”
Currently, the group has a cash pile of $292.1 million and zero debt coupled with strong free cash flows yearly and low capex requirement, which led the analyst to believe that the group is well positioned to go on an acquisition spree. It also has the aptitude to leverage up in the event it finds a sizeable target for M&A.
Since its listing, the group’s management has shown interest in growing inorganically, and Seet says that the group is currently under negotiations with a few targeted companies, which are likely recruitment firms in the region where the group plans to expand, especially North Asia.
The analyst believes that this will likely happen in 3Q18 and 4Q18.
Seet expects more strong performance and record quarters ahead for the group, due to solid growth in North Asia and Singapore across all segments, including the full impact of the 88GLOW Plan on PATMI, and the absence of IPO expenses.
As at 3.55pm, shares in HRnetGroup are trading at 82 cents or 2.32 times FY18 book with a dividend yield of 3.1%.
