Brokers’ take: DBS expects continued growth for HRnetGroup, reinstates coverage

DBS Group Research on Friday (Sep 16) reinstated coverage on HRnetGroup with "buy" and a target price of S$1.08.

It believes the recruitment company is well poised to benefit as a dominant player in a fragmented market as Singapore's labour market remains tight.

"Although the overall macroeconomic outlook has weakened, HRnetGroup has proven its ability to navigate economic downturns with its twin engines and diversified business," said DBS analyst Andy Sim.

The research team's target price of S$1.08 implies a potential upside of 37.6 per cent from the counter's last trading price as at the midday trading break. Shares of HRnetGroup were trading 0.6 per cent or S$0.005 higher at S$0.785 at the time.

The company's valuation has also been viewed as attractive at 11.5 times DBS' estimated FY2023 earnings, with S$312.7 million in cash.

Furthermore, HRnetGroup is in a strong cash position to sustain its dividend practice of paying out at least 50 per cent of its net profit after tax, if not more after adjusting for exceptional items, the research team said.

With a relatively asset-light model with no need for heavy machinery and equipment, HRnetGroup's capital expenditure has been minimal. The group also has a lean operating model where around 80 per cent of its staff are fee earners, DBS added.

HRnetGroup's S$30 million share buyback programme should also help support its share price and further boost its returns to shareholders.

DBS projects earnings growth for the company to be led by expansion in new and existing markets. The group's war chest of cash provides opportunities for accretive acquisitions, and management has also indicated further areas of growth in Singapore - a more mature market - through large contracts with government agencies.

"Even after a record profit year in FY2021, we project continued growth of 2 per cent or 3 per cent for HRnetGroup as a result of it leveraging its dominant position, twin engines and wide coverage of sectors," Sim said.



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