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PhillipCapital sees FY2022 being record year for HRnetGroup on the back of robust demand for jobs and regional expansion

·2-min read

PhillipCapital's Paul Chew has kept his “buy” call on the company with an unchanged target price of $1.18.

As Singapore sees a robust recovery in jobs with employment growth seen across all sectors in the 1Q2022, PhillipCapital analyst Paul Chew is expecting HRnetGroup to see a record year of earnings.

In addition, the company is set to further expand its business regionally as it adds several new co-owners in Indonesia, Taiwan, Malaysia, Hong Kong and China.

“Co-owners are an important incentive tool to grow the regional franchise with local management. Co-owners get a stake in the company’s earnings, are entitled to dividends and a pre-agreed exit path,” writes Chew in his June 20 report.

HRnetGroup’s scale with its network of over 700 recruiters across 14 Asian cities is also a positive factor in Chew’s view.

“While the barrier to entry in the recruitment industry may be low, we believe the barriers to scale are immense… These barriers allow HRnet to maintain an asset-light model with minimal fixed assets of $1.5 million. The reported return on equity is 16% but arguably much higher,” he says.

With a total attributable equity of $370 million, which is almost equivalent to the company’s net cash of $327 million, HRnet could return a large chunk of capital to its shareholders and still sustain profitability, the analyst notes.

In his report, Chew has kept his “buy” call on the company with an unchanged target price of $1.18.

“Our valuation is benchmarked to the mid-range of the historical five-year range, 12x PE FY2022 ex-cash,” he writes. “HRnetGroup’s dividend yield is 5% based on their guided payout of 50% of a recurrent net profit.”

To him, the company’s drivers for growth will come from higher volumes, higher salaries and a widening footprint in the region.

“Demand for flexible hiring is expected to move away from Covid-19 related work to manufacturing and tourism,” he says.

Also working in HRnetGroup’s favour, is its strategic 14.47% investment in Staffline Group, which returned to profitability in the FY2021.

As at 11.50am, shares in HRnetGroup are trading flat at 77.5 cents.

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