SINGAPORE (Nov 12): RHB Research is maintaining HRnetgroup at “buy” after the latter reported strong growth in its third-quarter top and bottom lines coupled with higher margins.

In 3Q18, HRnetgroup reported a 7.7% y-o-y rise in revenue to to $105 million while earnings grew 17.8% y-o-y to $12.6 million led by strong performance in its North Asia and Singapore units.

Gross profit margin also rose to 38% from 35% a year ago on higher contributions from its professional recruitment business which has a much higher margin of 99.6%.

See: HRnetGroup 3Q earnings up 17.5% to $12.6 mil
In a Monday report, RHB analyst Jarick Seet says professional recruitment revenue grew 22.2% y-o-y, led by Singapore and North Asia..

Revenue from flexible staffing business in Singapore and Hong Kong grew 3.4% y-o-y.

“With its REForce acquisition in China, we expect it to contribute positively to PATMI. Also, in 4Q18, we anticipate the further positive growth in North Asia to continue driving the company’s profitability,” says Seet.

Typically, 4Q is the best quarter for HRnetgroup's flexible staffing business due to festivals like Christmas and New Year’s Eve. Seet thinks 4Q18 will be no different, with strong flexible staffing driving growth for the period.

In addition, the full accretion from Rimbun and REForce will also contribute positively to the group’s numbers in 4Q.

Meanwhile, with net cash of $275 million, management is actively in talks with several parties for M&As.

“We believe HRnetgroup will likely make more acquisitions in the near future and focus on new markets as well as build up its presence in North Asia,” says Seet.

Looking ahead, Seet expects the effect of the 88GLOW Plan on PATMI will take full effect for 2018. In addition, management is likely to continue its share buyback scheme to reward productive sales employees and for further acquisitions purposes.

RHB has a target price of $1.18. The stock is trading at 80 cents this morning, at 13 times FY19F earnings with a yield of 3.75%.