SINGAPORE (Jan 3): DBS Group Research is starting coverage of HRnetGroup (HRnet) at "buy" with a target price of 96 cents with the labour market looking set to recover.
Established in Singapore in 1992, and now in 10 Asian cities, HRnet is the largest recruitment firm in Asia Pacific (ex-Japan) according to Frost & Sullivan.
HRnet currently has 818 permanent employees and holds a dominant market share in Singapore.
"Going by the uptick in growth in Singapore’s services sector, we believe the labour market has bottomed; and, a recovery should bode well for HRnet being the largest player in Singapore," says lead analyst Andy Sim.
DBS' valuation is based on 15x FY18 ex-cash earnings with an estimated FY18 net cash of $278 million.
With its recent IPO, the group has extended its co-ownership model with incentive programmes dubbed 88GLOW and 123GROW.
This, according to Sim, should increase productivity for the group, align employee interests and drive better operating performance.
Meanwhile, HRnet's operations are cashflow generative as seen from its growth to $53 million in FY16 from $40 million in FY14.
As at Sept 30, net cash stood at $276 million or 35% of market cap, providing a strong war chest for inorganic growth.
In Sim's view, the movements in share price post its recent IPO priced at 90 cents presents an opportunity for investors to buy into this counter as the stock is now trading at an ex-cash P/E of 13 times FY17 earnings and 11 times FY18 earnings, significantly lower than its peers.
He is projecting net profit growth of 17% for FY18 and 4% for FY19, driven by higher revenue and gross profit, and lower level of non-controlling interests.
Key risks include downturn in economic and business cycles, competition, departure of key personnel and relatively low liquidity of stock, which is possibly due to its short listing history, adds the analyst.
As at 10.45am, shares in HRnet are trading 1 cent higher at 80 cents.
