Maybank Kim Eng analyst Eric Ong has initiated coverage of HRnetGroup with a “buy” call and 99 cents target price, given the regional recruitment firm’s proxy to an improving employment market.
“We see HRnet as a good proxy for an impending recovery in labour markets,” writes Ong in his July 24 note.
His view is underpinned by improving economic indicators; positive hiring sentiment by employers; as well as further reopening due to mass vaccination across the regions.
Ong describes the company’s synergistic and balanced business model that is supported by two complementary businesses.
“Its flexible staffing business provides a relatively stable and steady revenue stream during economic downturns, while the professional recruitment business generally performs well during periods of economic expansion,” he adds.
As such, the provision of both services allows HRnet to be resilient through economic cycles, while offering comprehensive recruitment solutions to its highly diversified customer base. For one, in FY2020, its top ten customers contributed just 22% of its total revenue.
In the same year, Singapore, the home market, accounted for 72% of the company’s revenue and 54.5% of its gross profit. Ong expects North Asia will chip in a bigger proportion of the numbers, as HRnetGroup continues on its expansion there via organic growth of existing brands and also possible M&As.
Ong also likes HRnetGroup for its highly cash generative, and asset-light model and flexible cost base.
His target price of 99 cents is pegged at 18 times FY2022 earnings, which is a “slight premium” over its global peers.
Ong believes this valuation is “justifiable” given HRnetGroup’s more superior ROE and a strong net cash position of $332 million, equivalent to 42% of its current market value.
The stock, which closed at 80 cents on July 23, is trading at an undemanding valuation of 9 times (ex-cash) FY21 earnings.
