Brokers’ take: DBS downgrades HRnetGroup to ‘hold’ as labour market softens
Mia Pei
DBS Group Research on Wednesday (Jun 28) downgraded HRnetGroup to “hold” from “buy” as it expects softness in the Singapore and China’s economies to hit the labour markets.
This could translate to lower job placements, which is a key revenue driver for the mainboard-listed recruitment agency, the research team said in its report.
It has trimmed its target price by 19.6 per cent to S$0.86 from S$1.07, after lowering its revenue and earnings forecasts for FY2023 and FY2024.
The new price is 10 times DBS’ estimates for FY2023-24 earnings on an ex-cash basis, lower than its previous peg of 11.5 times. This is to account for the increasingly uncertain macroeconomic environment and slowing labour markets.
A tough economic climate could cool demand for job placements in HRnetGroup’s main market in Singapore, where it derived 64 per cent of revenue and 52.7 per cent of gross profit for the second half ended Dec 31, 2022.
Although Singapore’s labour market continued to expand with total employment rising in the sixth consecutive quarter, it may “lose steam” as the macroeconomic environment grows weaker and more uncertain. DBS also noted that job vacancies remained elevated in Q1 2023, compared to pre-pandemic levels in Q1 2019.
DBS said it had initially expected the Chinese economy to rebound as it pivots from its zero-Covid policy. However, the recovery has been below market expectations, and any growth reflected was due to base effects and, to a certain extent, pent-up demand.
“Confidence in the Chinese economy is weak, making it more challenging for recruitment firms such as HRnetGroup to build business pipelines,” said DBS analyst Andy Sim.
The group could come under downward pressure on placement demand, particularly its professional recruiting segment amid the uncertain economic outlook, he added.
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