PhillipCapital is initiating coverage on professional staffing and recruitment firm HRnetGroup with a “buy” call and target price of $1.00.
This is expected to give the counter a 33.2% return from its current 77 cent price, research analyst Tan Jie Hui writes in a July 16 report.
“Our target price is set at 14x FY21 ex-cash P/E (net of interest income after tax), given that HRnet has been generating superior ROEs (return-on-equity) than most regional and global recruitment peers,” explains Tan. The historical high of HRnet’s ex-cash P/E was around 14 times.
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HRnet is now trading at 16.2x FY2021 P/E – a level that is significantly lower than its peer average of 24.4x, notes Tan.
“Stripping out net cash of $332.2 million which is equivalent to 43% of its market cap, it trades at ex-cash P/E of 9.2x/8.9x on FY2021/22 EPS. A strong cash hoard positions HRnet for any earnings-accretive North Asian opportunities that may come its way,” he stresses.
With a market share of 20.5% based on its 2015 revenue, HRnet is the largest employment agency in Singapore.
A recent compilation by ACRA (Accounting and Corporate Regulatory Authority) indicates that the company has remained the largest and most profitable recruitment service player in the republic. It also has operations across 13 Asian cities including Malaysia and China.
Aside from market share, Tan highlights that HRnet is the “most profitable” in the human-resource business.
For one, it attained 152% ex-cash ROE, thanks to strong income generation. This stems from its scale and reputable brands that are led by an experienced board and management team, notes Tan.
He adds that the company's permanent recruitment and flexible staffing arms saw stronger volumes and rates following urgent market needs to fill positions left vacant during the pandemic.
For instance, there were 18,700 and 17,600 new jobs created in Singapore in 4Q2020 ended December and 1Q2021 ended March. This followed renewed hiring by sectors such as food and beverages and community, social and personal services.
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With high barriers to entry for both permanent recruitment and flexible staffing services, Tan expects HRnet’s bottom line to grow by 1.9% y-o-y in FY2021, after accounting for the easing in Covid-19 government grants.
As at 2.39pm, shares in HRnetGroup were up 1.5 cents or 1.95% to 78.5 cents.
