Analysts are keeping their "buy" calls on HRnetGroup CHZ but have all lowered their target prices after the company's earnings for the FY2022 ended Dec 31, 2022, stood at $67.5 million, up 3.1% y-o-y. HRnetGroup's revenue for the year grew by 3.6% y-o-y to $611.8 million.
RHB Group Research analyst Alfie Yeo has kept his “buy” call on HRnetGroup, but with a slightly reduced target price of $1 from $1.01, as the recently reported FY2022 earnings fell slightly short of expectations and lower earnings seen in the near term.
Yeo, in his March 7 report, points out that HRnetGroup’s earnings and revenue stood slightly below his expectations, because of lower contribution from the professional recruitment segment.
Contributions from the flexible staffing grew healthily, with demand especially coming from the retail, healthcare and hospitality industries in markets such as Taiwan, China and Singapore.
Yeo’s price target is based on 14x FY2023 earnings estimate, which has been reduced by between 7% and 8%. The stock is now trading at 13x. Despite the lower earnings forecast, the stock’s earnings per share is seen to drop by a smaller magnitude because of the company’s share buybacks.
“We continue to like HRnetGroup, as it is well-positioned for a recovery in 2HFY2023 despite near-term labour market headwinds,” writes Yeo.
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“The stock enjoys diversified exposure across multiple Asian economies and industries. It has strong cash flow-generating ability, a net cash balance sheet and an attractive dividend yield, too,” he adds.
The company has declared a final dividend of 1.87 cents, bringing full-year dividend to 4 cents, translating into a payout ratio of 60%.
Possible downside risks include a slower-than-expected labour market recovery in the key operating markets of Singapore, China and Taiwan, notes Yeo.
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DBS Group Research's Andy Sim has also kept his "buy" call with a lower target price of $1.07, from $1.08 previously.
Though HRnetGroup's earnings and revenue for FY2022 stood in line with Sim's expectations, Sim has lowered his earnings estimates for FY2023 and FY2024 by 2% and 3% respectively. "[This is] as higher margin Covid-related revenue scales back, offset partially by expectations of higher professional recruitment fees on wage growth," he writes.
"Our target price is based on 11.5x FY2023 earnings, which is close to the mean ex-cash P/E of the company’s peers," he adds.
In his report, Sim remains positive on the company's prospects with Singapore's labour market remaining "tight" and the market likely to stay "resilient" in 2023.
"Singapore’s economy is expected to grow 0.5%-2.5% with the job market remaining tight, with the job vacancy-to-unemployed person ratio at 2.2. Although companies are turning more cautious, hiring sentiment stays positive with 64.6% and 25.3% of employers intending to hire and raise wages, respectively, in the next three months (m-o-m). This bodes well for HRnet’s placements and gross profit per placement, which are key earnings drivers," he says.
HRnetGroup's operations in North Asia also look set to benefit from China's post-Covid economic recovery. Taiwan should also stand to gain from long-term structural tailwinds as capacity expands in the semiconductor industry, alongside border reopening, notes Sim.
"As such, we project professional recruitment placements and gross profit growth of 3% and 6% respectively in FY2023," he adds.
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Finally, Maybank Securities analyst Eric Ong has kept his "buy" call with a target price of $1.04, down from his previous target price estimate of $1.07.
To him, HRnetGroup's 2HFY2022 earnings of $32.9 million stood within his expectations though the company's revenue of $297.6 million for the same period came lower than estimated.
Despite the cautious market, Ong notes that there are "pockets of opportunities" for the company, China's reopening being one of them.
"Following the abandonment of its zero-Covid policy and the re-opening of its economy since early 2023, hopes are building that China can stage a strong rebound. In fact, the Chinese government is aiming to boost domestic consumption and woo more foreign investors this year as it seeks to revive the country’s Covid-hit economy. As such, management believes labour demand is likely to rise, from manufacturing to retail, food and beverage (F&B) as well as in the travel-related hotel and hospitality sectors," he writes.
Ong also notes HRnetGroup's "rock solid" balance sheet and sees room for the company to further increase its payout ratio despite the "decent" dividend yield of 5%.
"[This is] especially given its asset-light business model," Ong writes.
"Valuation is also attractive at less than 8x ex-cash P/E, in our view," he adds.
That said, Ong has lowered his forecasts for FY2023 and FY2024 by 3% to 5% on lower placement volumes.
His new target price is still based on an FY2023 P/E of 15x.
HRnetGroup shares last traded at 81.5 cents, up 1.87% year to date.
