The Business Times

Brokers' take: PhillipCapital initiates HRnetGroup with 'buy', S$1 target price

Jeanette Tan
Published Fri, Jul 16, 2021 · 02:55 PM

PHILLIPCAPITAL on Friday initiated a "buy" call on recruitment and staffing firm HRnetGroup CHZ, : CHZ 0% projecting an expected turnaround in the hiring landscape for permanent recruitment as well as flexible staffing.

These two areas make up 99 per cent of the company's gross profit in FY2020, the brokerage's research team said. Singapore, in particular, contributed more than half of the company's gross profits in the same period.

The mainboard-listed firm, it notes, has been able to pull off a successful business model that capitalises on both the scale barriers of permanent recruitment and the high barriers to entry for flexible staffing.

It put forward a target price of S$1 for HRnetGroup, indicating an upside of close to 30 per cent from its last closing share price of S$0.77 on Thursday.

In its report, PhillipCapital explained that HRnetGroup, Asia's largest recruitment agency outside of Japan, has the advantage of being asset light, cash rich and also cheap - its analysts calculate that the stock is being traded at markedly lower price-to-earnings ratio than its peers.

Plus, the research team adds, HRnetGroup has been generating superior returns on equity (ROEs) to its regional and global recruitment peers.


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"High ex-cash ROEs are attributable to HRnet's strong income-generating business, which is built on scale, little PPE and reputable brands, led by an experienced management team which is skilful in identifying talents," the research team said. "Reflecting this, it has been able to generate steady and consistent gross and net margins of 30 to 36 per cent and 11 to 13 per cent respectively."

The analysts also praised HRnetGroup's strong operating cash flows in FY2020, with some 73 per cent of its S$452 million in assets made up of cash and its equivalents. Capital expenditure is also low, at S$1.2 million or 0.3 per cent of total assets annually over the past five years.

In terms of growth opportunities, PhillipCapital also sees expansion opportunities for HRnetGroup across North Asia, in particular China, which plans to generate 11 million jobs this year. Amid its ongoing active growth in Asia, the research team speculates that the company is poised to seize these openings with its S$332 million cash hoard in hand.

PhillipCapital's initiation comes on the back of two other "buy" calls from CGS-CIMB and RHB Research earlier this year.

HRnetGroup's share price closed at S$0.79 on Friday, up 2.6 per cent or S$0.02.

READ MORE: HRnetGroup's largest shareholder raises stake

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