HRnetGroup
Price targets:
Maybank Securities ‘hold’ 80 cents
PhillipCapital ‘buy’ 85 cents
Resilient numbers
Maybank Securities and PhillipCapital are mixed on HRnetGroup (HRnet) following the company’s FY2023 ended December 2023 results, which saw a core patmi of $28 million in 2HFY2023.
Maybank’s Eric Ong has kept his “hold” call with an unchanged target price of 80 cents, saying that the group has been resilient compared to its peers given the economic conditions of last year.
On the other hand, Paul Chew of PhillipCapital expects “growth to creep up” and has lowered his target price to 85 cents from 88 cents while maintaining his “buy” call.
Ong highlights that the employment market remains cautious. HRnet’s professional recruitment (PR) revenue fell 30% y-o-y for the 2HFY2023 to $31 million amid hiring freezes and cautious sentiment across key markets.
In FY2023, the group placed 5,774 (–19% y-o-y) candidates while gross profit per placement also declined 16% to $11,300. Flexible staffing (FS) turnover was flat at $250 million, although gross profit margin dipped by 0.4 percentage points (ppts) to 13.7% in 2HFY2023 along with the rolling back of the Covid-related healthcare business in Singapore. FY2023’s average contractor volume was down 7% to 16,141, but gross profit per contractor ticked up by 2%.
Ong notes that HRnet is experiencing a shift in its revenue mix towards flexible staffing, as the revenue proportion of FS rose to 88% in FY2023, up from 83.4% in FY2022.
“We note that Hong Kong, Jakarta and Taipei continued to register FS growth but this was offset by reduced demand elsewhere, while its Mainland China PR business bore the brunt of the slowdown in economic activity,” says Ong.
Meanwhile, HRnet’s balance sheet remains “rock solid” with net cash of $312 million, which Ong says allows the group to fund growth in FS and its other businesses using annual recurring revenue. These include its payrolling services YesPay! workforce management solutions at Octomate and Octomate Staffing.
Ong says that HRnet plans to leverage its cash position to take market share from weaker competitors and pursue investments in HR-related outsourcing. As such, he keeps his “hold” call with an unchanged target price of 80 cents, still based on 15 times FY2024 P/E.
Likewise, Chew from PhillipCapital notes that FS is HRnet’s key performer while its PR segment is still its weak spot with placements at the “lowest since listing”.
While hiring in technology roles from start-ups to semiconductors has been a growth vertical for HRnet, the pace of hiring in the segment has slowed significantly, says Chew. He adds that growth will now come from capturing a larger share of the customer budget.
In addition, general hiring conditions are weak, particularly in China, he adds.
With more “tepid growth” on the horizon, Chew is reducing his valuation to 11 times P/E ex-cash FY2024 from 12 times.
“We lowered our FY2024 earnings by 11% to $57 million,” says Chew. “Target price lowered from 88 cents to 85 cents. It remains at a huge discount to global peers trading at an average P/E of 19 times.”