The Business Times

Brokers' take: Maybank KE initiates HRNetGroup with 'buy', praising balanced business model

Jeanette Tan
Published Mon, Jul 26, 2021 · 02:49 PM

ANALYSTS from Maybank Kim Eng (Maybank KE) have initiated a "buy" call on recruitment and staffing firm HRNetGroup CHZ : CHZ 0%, describing it as "a good proxy for impending recovery in labour markets".

This recommendation, they noted in a research report released on Saturday, is underpinned by improving economic indicators, positive employer hiring sentiment, as well as further reopening that will follow ongoing mass vaccinations for Covid-19 across the regions.

Its team set a target price of S$0.99, a 23 per cent upside on its closing price of S$0.805 on Monday, noting the company's two complementary businesses - flexible staffing and professional recruitment - that form the bulk of its operating model.

"In our view, the provision of both services allows HRnet to be resilient through economic cycles, while offering comprehensive recruitment solutions to its highly-diversified customer base," Maybank KE's researchers wrote.

Like PhilipCapital, which initiated a "buy" call on HRnetGroup with a target price of S$1 on July 16, Maybank KE notes the expansion potential the mainboard-listed firm has in North Asia, in terms of widening the scope of its existing brands as well as mergers and acquisitions opportunities.

The analysts also noted HRnetGroup's asset-light model and flexible cost base, and observed "relatively stable margins" over the past three years in terms of earnings, dividends and free cash flow per share, together with a 14 to 15 per cent return on equity, despite its "significantly ungeared" balance sheet.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

VIEW ALL

The firm's efficiency ratio has also increased to 51.8 per cent in FY2020 from 36.5 per cent in FY2014, the research team said, adding that its growth has been organic and self-funded with cash generated by operations, without any debt financing.

In terms of industry outlook, HRnetGroup said the sectors that will be bright spots for hiring in the near term include healthcare, finance, technology, logistics and government. This is in line with Maybank KE's observation of a backdrop of improving economies across the regions allowing net employment outlook to remain positive.

The research team also warns of narrowing profit margins due to a rollback of government subsidies, increased market competition and regulatory issues, among other risks. Ultimately, though, it says HRnetGroup's superior returns on equity and strong net cash position of S$332 million justifies the premium to its global peers average.

Shares of HRnetGroup closed at 80.5 Singapore cents as at 1.42pm on Monday, up 0.63 per cent or 0.5 cent.

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

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to  t.me/BizTimes

Capital Markets & Currencies

SUPPORT SOUTH-EAST ASIA'S LEADING FINANCIAL DAILY

Get the latest coverage and full access to all BT premium content.

SUBSCRIBE NOW

Browse corporate subscription here