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Broker's take: CGS-CIMB initiates coverage on HRnetGroup with 'add'

BROKER CGS-CIMB has initiated its coverage on recruitment agency HRnetGroup with an "add" call, on a target price of S$1.10.

The mainboard-listed firm's shares have added 1.15 per cent, or one Singapore cent, to 88 Singapore cents as at 11.06am on Wednesday.

HRnetGroup's professional recruitment segment offers leverage to economic upturn, while its flexible staffing business provides a defensive edge, said the broker in a Wednesday note, while adding the company's strengths lie in its "household brand" to attract a large candidate pool, strong balance sheet to support customers with high flexible staffing needs, and regional reach.

Despite the rise of digital platforms such as LinkedIn and artificial intelligence becoming potential disruptors, recruitment services such as HRnetGroup will nevertheless remain relevant due to their intermediary role in negotiation, candidate screening and proven success in job-matching, CGS-CIMB noted.

Given recent acquisitions in China and Hong Kong, the broker forecasts HRnetGroup's net profit to rise with a three-year compound annual growth rate (CAGR) of 14.6 per cent for fiscal 2017-2020.

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"We see earnings-accretive M&As (mergers and acquisitions) and improving productive headcount as potential rerating catalysts for the stock. Downside risks are rapid Asian economic slowdown and poor overseas execution," CGS-CIMB said.

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