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HRnetGroup kept at 'buy' on acquisitions, wage credit scheme and lower expenses

Samantha Chiew
Samantha Chiew • 3 min read
HRnetGroup kept at 'buy' on acquisitions, wage credit scheme and lower expenses
SINGAPORE (Feb 26): HRnetGroup announced this morning that its 4Q17 earnings increased 22.4% to $12.2 million due to strong flexible and professional staffing.
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SINGAPORE (Feb 26): HRnetGroup announced this morning that its 4Q17 earnings increased 22.4% to $12.2 million due to strong flexible and professional staffing.

This broughFY17 earnings to $41.28 million, 0.6% higher than $41.26 million in FY16.

Revenue was up by 9.5% to $101.7 million, while FY17 revenue rose 7.4% to $391.9 million.

This is the group’s fourth straight quarter of growth in revenue and gross profit for FY17 ended Dec 2017.

The group declared a final dividend of 2.3 cents per share.


See: HRnetGroup reports 22.4% rise in 4Q17 earnings to $12.2 mil

RHB has then maintained its “buy” recommendation on HRnetGroup with a target price of $1.14, on the back of the absence of IPO expenses and the continuation of the wage credit scheme (WCS), coupled with more potential acquisitions ahead.

The group’s 4Q17 results reflected strong growth at its flexible staffing business in Singapore, as well as full contributions from its 88GLOW Plan.

The 88GLOW Plan is a scheme the group implemented with 22 other individuals that allows them to swap their minority interest in certain group subsidiaries for shares.

In a Monday report, analyst Jarick Seet says, “We do expect the strong demand to carry on into 1Q18 due to the Lunar New Year, which saw a surge in demand for its short-term workers.”

Meanwhile, the group’s management has guided for stronger performance from its Hong Kong operations, as they have turned around and returned to profitability from being loss making in 1H17. Operations across the region have been robust.

With the group’s 2.3 cents of dividend for FY17 that represents 55% of its earnings, the analyst believes that there is a possibility of interim dividends going forward, as well as a higher payout ratio, due to the group’s low capex and strong balance sheet.

In addition, the group has a net cash hoard of $290 million and $15-20 million free cash flow yearly on low capex requirements.

Hence, Seet believes that the group is well-positioned to go on an acquisition spree.

The group has also expressed interest in inorganic growth via acquisitions, especially in other parts of the world, with several non-disclosure agreements (NDAs) already signed.

“We believe it would likely target recruitment firms that specialise in a specific sector, which would further add an edge and niche to their existing profile. We think that there may be more, larger-sized acquisitions to come, especially in 2Q18 and 3Q18,” says Seet.

As at 3.15pm, shares in HRnetGroup are trading 2 cents higher at 81 cents, giving a FY18 recurring price-to-earnings ratio of 16.3 and a dividend yield of 3.1%.

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