RHB Group Research is keeping its “buy” call on HRnetGroup with an unchanged target price of 91 cent, as analyst Alfie Yeo expects the group to see growth led by economic recovery.
“We continue to be positive on HRnetGroup, ahead of anticipated economic recovery in Singapore and China,” says Yeo, adding that the research house’s economist has forecasted Singapore’s 2024 GDP growth to accelerate (1.5% growth in 2023, before accelerating to 3% in 2024) while maintaining strong GDP growth of 5% for China.
Apart from being a beneficiary of the economic recoveries in Singapore and China, Yeo likes the stock for its cash-generative ability, strong net cash balance sheet, attractive dividend yield of about 5%, undemanding valuation of around 11x forward P/E (at -1SD of its historical mean forward P/E) and continued share buyback in support of EPS.
Meanwhile, the unemployment rate has remained stable in November 2023 from 3Q2023 at 2%. “We like the stock due for its compelling valuation vis-à-vis growth as a beneficiary of economic recovery this year,” says Yeo.
On the outlook, with the growing GDP driven by improving external environment, Yeo expects more robust global demand to drive domestic industries’ recovery and, eventually, the demand for labour, which will lend support to his earnings outlook.
“Our two-year FY2023-FY2025 earnings growth CAGR remains at 5%, as we are positive on a hiring recovery from next year onwards – this is on the back of accelerating economic growth,” says Yeo. The group’s financial year ends on Dec 31.
Outside of Singapore, China seems to also be recovering economically, with RHB economists forecasting a 5% GDP growth for 2024. China’s 3Q2023 GDP has already surprised market estimates with a 4.9% y-o-y growth.
Furthermore, the country’s growth momentum has accelerated sequentially to 1.3% q-o-q (seasonally adjusted) from a 0.5% q-o-q (seasonally adjusted) growth in 2Q2023, supporting a recovery. “This should translate into higher job demand in 2024 as well. HRnetGroup’s North Asia segment contributed to 40% of 1HFY2023’s gross earnings, of which China is a key contributor,” says Yeo.
As at 1.40pm, shares in HRnetGRoup are trading at 72 cents.
