RHB’s small cap Asean research team is maintaining its ‘buy’ call on professional staffing firm HRnetgroup, but at a revised target price of 72 cents.

This is up 20 cents from its previous 52 cent call and is believed to give the counter a 22% upside from its 59 cent price on Mar 3, analyst Jarick Seet says in a research note.

His target price is pegged to 15x FY2021 price-to-earnings, he explains. By contrast, the counter is presently trading at what Seet calls a “modest” 11.7x FY2021 price-to-earnings.

“HRnet has been an efficiently run company. In comparison, a number of its global peers have been operating at a loss during the Covid-19 pandemic,” Seet notes, adding that the company has still been generating positive cashflows and had $333 million in net cash as of FY2020.

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This is equivalent to 60% of its market capitalisation.

Going forward, Seet is optimistic that the company will benefit from a rebound in hiring, as countries are expected to see a recovery in their economies.

“A country’s GDP growth is a key indicator of its economic performance,” Seet explains, adding that the shrinkage in global GDP growth in 2020 may continue into 1H2021 ending in June. 

After this time, he believes that GDP growth may bottom, before giving way to an economic recovery led by the roll out of more effective Covid-19 vaccines.  

This “should translate to bigger demand for jobs and hiring,” mulls Seet.

Against this backdrop, he believes that “most of the negative new has already been priced in,” in HRnetgroup’s recent earnings for FY2020. 

The group had reported a 9.2% y-o-y dip in its earnings to $49.8 million, while its gross profit was down 11.2% to $129.3 million. 

See: HRnetGroup gives out dividend of 2.5 cents in FY2020 despite 9.2% drop in earnings

Seet is predicting a rebound in HRnetgroup’s earnings in 1H2021. 

For the full FY2021, he expects it to have a dividend yield of 4%, given its “net cash balance sheet, strong cash flow generation and brighter outlook”. 

He adds that the group’s FY2021 dividends is slated to be higher than the 4 cents per share given out in FY2020.

To this end, Seet believes that HRnetgroup is “a good proxy to the regional economic recovery”.

The key downside risks he foresees is an economic recession that dampens the demand for recruitment services.

As at 12.39pm on Mar 5, shares in HRnetgroup were up a cent or 1.72% to 59 cents.