As hiring prospect improves, so does outlook for HRnetGroup shares: CGS-CIMB

Singapore

AN improving landscape for hiring in Singapore bodes well for HRnetGroup, said analysts at CGS-CIMB. A labour market report due out next week could also act as a catalyst for the stock.

The brokerage has reiterated its "add" call on HRnetGroup with a higher price target of 82.1 Singapore cents, compared to 69.8 cents previously.

The new target price is still pegged to a multiple of 14 times CGS-CIMB's estimates for FY2022 earnings, which is the recruitment company's five-year historical mean multiple.

This target price hike follows a non-deal roadshow (NDR) CGS-CIMB hosted for the recruitment company on June 4, at which HRnetGroup had noted a recovery in, and good volumes for, both the group's flexible staffing and permanent placement business.

CGS-CIMB has therefore raised FY2021 to FY2023 earnings per share estimates by ranges of 8.3 to 24.7 per cent to factor in higher permanent placement volume expectations on a potential recovery in labour markets.

This is to be supported by improving economic fundamentals, declining employment rates and positive hiring sentiment across HRnetGroup's key markets in Singapore and North Asia, said CGS-CIMB analysts in a report on June 8.

The research house is forecasting FY2021 and FY2022 yields of 3.9 per cent and 4.4 per cent, respectively.

Citing ManpowerGroup's global employment survey for Q3 2021, CGS-CIMB analysts observed that the group's key markets of Singapore, Taiwan and China all reported positive net employment outlooks. In their view, this reflects increasing business confidence and should translate into more hiring activities, as well as job creation.

While they noted that the Covid-19 pandemic is "far from over" in Singapore, the analysts believe the labour market could be "turning the corner". They also see Phase 2 (Heightened Alert) as a "small speed bump" to HRnetGroup's gradual recovery, as the restrictions on movement are not expected to dampen hiring sentiment.

With the Ministry of Manpower due to publish its labour market report for Q1 of 2021 some time next week, the analysts believe positive data points will serve as tailwinds for the stock.

"We understand that the technology, finance, government and healthcare sectors remain the bright spots for hiring, according to our NDR with management. HRnetGroup, which derived 60 per cent of its total revenue in FY2020 from these three sectors, should be a beneficiary, in our view," the report added.

Shares of HRnetGroup ended two Singapore cents or 2.9 per cent higher at 71.5 cents on Wednesday.